Express Guide: Should You Sell Your Stock or Hold It?

Sanzhi Kobzhan
Dec 10, 2025
15 min read

Updated: Dec 17, 2025

Express Guide: Should You Sell Your Stock or Hold It?

Evaluating Fundamental Momentum Before Selling or Holding

One of the first things to examine is your stock’s fundamental momentum – in other words, are the company’s fundamentals consistently improving or deteriorating over time?

Fundamental momentum looks at multi-quarter trends in metrics like earnings, revenue, cash flow, and debt. Instead of just reacting to one good or bad quarter, you track whether the business is steadily getting stronger.

Stocks with rising earnings and strong fundamental momentum tend to outperform those with weakening fundamentals over the long run.

Earnings Per Share (EPS) Trend

Check if the company’s EPS has been growing each quarter (or each year). A company that increases its earnings quarter after quarter is likely executing well.

For example, a tech giant like Microsoft increased its EPS consistently over recent quarters, which signaled robust momentum. In contrast, if you see EPS plateauing or dropping for several periods, it could be a warning sign. (Be mindful of seasonal patterns, though.

MSFT EPS trend Q over Q. Extracted using the Stocks2Buy Fundamentals Analyzer

A company like Apple might see a dip in EPS in spring after a holiday surge – a seasonal effect rather than a fundamental weakness. In such cases, compare year-over-year EPS to get a clearer picture.)

Revenue Growth

Look at revenue trends as a measure of sales momentum. A company growing its top-line revenue steadily quarter after quarter demonstrates strong demand and market share gains.

If revenue is flat or declining over multiple periods, it may indicate the firm’s products are losing momentum or facing tougher competition – a potential signal to reconsider holding the stock.

Consistent revenue growth, on the other hand, supports a decision to hold (or even buy more) since it shows the business is expanding.

AAPL Financials trend Y over Y. Extracted using the Stocks2Buy Fundamentals Analyzer

Profit Margins and Cash Flow

Don’t just focus on EPS – also consider profit margins and free cash flow trends. Profit margin (net income as a percentage of revenue) reveals how efficiently a company turns sales into profit.

Improving margins (e.g. through cost control or pricing power) are a positive sign, whereas shrinking margins are a red flag. Free cash flow (operating cash flow minus capital expenses) is another crucial metric; it’s harder for companies to “fudge” cash flow with accounting tricks, so rising cash flow over time indicates genuine financial health.

If a company’s earnings are up but cash flow is dwindling, it might mean the quality of earnings is poor – an alarm bell for investors.

Consistently increasing cash flow and expanding margins signal a company that’s fundamentally strong, supporting a hold-or-buy decision.

NVDA Profit Margins and Cash Flow Y over Y. Extracted using the Stocks2Buy Fundamentals Analyzer

Debt and Leverage

Pay attention to the company’s debt trend. A healthy company often manages or reduces its debt relative to equity and earnings. For example, if the debt-to-equity ratio has been falling or interest coverage (earnings relative to interest payments) is improving each year, the balance sheet is getting stronger – a point in favor of holding the stock for the long term. Conversely, if debt levels are climbing faster than earnings and the company is becoming more heavily leveraged than its peers, it introduces risk.

A rising debt burden, without a clear payoff like expanding production or revenue, could be a cue to sell the stock before the financial strain worsens. High leverage can hurt a business if conditions change (e.g. higher interest rates or economic downturns), so deteriorating debt metrics are a caution sign.

Is the company consistently improving its fundamentals

Fundamental momentum boils down to a simple question: Is the company consistently improving its fundamentals (earnings, sales, margins, cash flow, debt) over multiple quarters or years? If yes, that momentum is a strong argument for holding onto the stock (or even adding to your position) because it indicates the business is on a solid upward trajectory.

If not – especially if you observe a pattern of declining revenue, shrinking earnings, or rising debt over several periods – it may be time to reassess your investment and consider selling. A negative trend sustained across key metrics is often a precursor to a declining stock price. At the very least, it raises a red flag to investigate further.

Sometimes a company can recover from a rough patch (turnarounds do happen), but you should have a convincing reason to believe the trend will reverse before you decide to hold a stock with weakening fundamentals.

Using Key Financial Ratios to Compare with Peers

Beyond looking at your company’s own trends, it’s critical to compare its fundamentals to other companies in the same industry. Using key financial ratios helps you judge if your stock is the best choice among its peers or if your money would be better invested elsewhere. Here are some of the most important ratios and how they can guide a sell or hold decision:

Price-to-Earnings (P/E) Ratio

This valuation ratio tells you how much investors are paying for each dollar of the company’s earnings. Compare your stock’s P/E to the average P/E of similar companies. If your stock’s P/E is significantly higher than peers but its growth prospects are no better, it could be overvalued – a sign you might want to take profits (sell).

A high P/E can indicate that a stock’s price has run ahead of its fundamentals. On the other hand, if your company has a moderate or low P/E relative to peers (and no glaring problems causing that discount), it suggests the stock is reasonably valued or even undervalued. In that case, holding makes sense, and if you haven’t bought the stock yet, a low relative P/E could be an opportunity to buy in.

Always consider growth when using P/E: a faster-growing company can justify a higher P/E. Some investors refine this by looking at the PEG ratio (P/E divided by earnings growth rate) to ensure a high P/E is backed by strong growth. If your stock’s PEG is much higher than competitors’, it implies you’re paying a premium not supported by growth – a caution sign.

TGT P/E Ratio V.S Sector. Extracted using the Stocks2Buy Fundamentals Analyzer

Return on Equity (ROE) and Profitability

ROE measures how effectively a company uses shareholders’ equity to generate profit. It’s a great ratio for peer comparison. If the stock you own has an ROE of 25% while most competitors are around, say, 15%, your company is highly efficient at generating returns – a point in favor of holding it. High and improving ROE often reflects strong management and a sustainable competitive advantage.

Conversely, if your company’s ROE lags far behind peer companies, you should ask why. A consistently lower ROE could mean the company is less efficient, has structural disadvantages, or carries excess balance sheet baggage.

For example, if two firms are in the same sector and one turns a much lower profit on the same equity base, investors might eventually gravitate to the more efficient business. In such a case, you might consider selling the weaker-ROE stock and switching into a peer with superior fundamentals.

Along with ROE, compare net profit margins among peers. A company with significantly higher profit margins (and the ability to sustain them) often has pricing power or cost advantages. If your stock’s margins are markedly below the industry norm, it may struggle competitively – another factor that could tilt you toward selling. Ideally, the stock you hold should be among the profitability leaders in its group.

TGT Key Metrics and Financial Ratios. Extracted using the Stocks2Buy Fundamentals Analyzer

Debt-to-Equity and Other Leverage Ratios

Every industry has different norms for leverage, but as a rule, lower debt relative to equity or earnings is preferable (all else being equal). Compare your company’s debt-to-equity ratio to its peers. If your stock’s company carries much more debt than its competitors and there’s no clear strategic benefit from that debt, it faces higher risk in downturns and less financial flexibility.

That might be a sign to pare back or sell, especially if interest rates are rising or credit markets look shaky. On the flip side, if your company has a noticeably stronger balance sheet (lower debt ratio, higher interest coverage, ample cash reserves) than peers, it can better weather economic storms and seize growth opportunities – a good reason to hold onto it for the long run. High debt isn’t always bad (some industries like utilities or real estate operate with high leverage by nature), but you want to see it managed and stable. Watch the trend: if debt is growing faster than assets or peers’ debt levels, that unfavorable trajectory can eventually hurt the stock’s performance.

Current Ratio and Liquidity

For a comprehensive peer check, you can also consider liquidity ratios like the current ratio (current assets divided by current liabilities). This is more about short-term financial health. While not usually a make-or-break for long-term investors, a much weaker current ratio than peers could indicate your company might struggle to meet near-term obligations or is less conservatively run. If one company in your portfolio has a current ratio of 1.0 (just barely enough to cover short-term debts) and peers are around 2.0, it suggests less of a safety cushion. In isolation this might not trigger a sell, but combined with other weaknesses it adds to the case.

Other important ratings to track.

There are other useful financial metrics and ratios to track for spotting the best share and defining the best time to buy your chosen stock. I've written an article "NVDA vs AMD: Which Stock Is the Better Investment?" Read it to learn more.

Evaluating Using Financial Ratios: Should You Sell Your Stock or Hold It?

In general, comparing multiple ratios together – profitability, valuation, leverage, and liquidity – gives a balanced view of where your stock stands in its industry.

Using these ratios in aggregate helps answer: Is my stock one of the best in its class or is it an underperformer hiding in a bull market?

If your analysis shows the company is fundamentally stronger than most peers (higher profits, lower debt, reasonable valuation), you have a credible case to keep holding. If instead you discover that other companies have superior metrics and perhaps lower stock prices relative to those fundamentals, it might be time to reallocate your capital to the better opportunity.

In other words, don’t fall in love with a stock if the data shows another business is doing far better – the market usually rewards the fundamentally superior company in the long run.

Short-Term vs Long-Term Considerations

Your investing timeframe plays a significant role in the sell or hold decision. Short-term traders and long-term investors might react differently to the same information:

Short-Term Perspective

If you’re trading on a shorter horizon (days to months), you might prioritize immediate catalysts and recent momentum. Fundamental momentum still matters, but you’ll be more sensitive to quarterly earnings surprises, news events, and technical trends in the stock price.

For example, a short-term trader might sell a stock quickly after detecting a downturn in quarterly revenue or an earnings miss, anticipating that the market will punish the stock in the near term. Short-term oriented traders often set specific price targets or stop-loss levels. If a stock hits your target price much faster than expected (perhaps on a big news spike), a trader might choose to sell and lock in gains even if the long-term fundamentals remain solid – the idea being you can always re-enter on a pullback.

Stop-Loss and Take-Profit and the DCF price target for the TGT stock. Set using the Stocks2Buy Fundamentals Analyzer

Stop-Loss and Take-Profit and the DCF price target for your selected stock. TGT corporation stop-loss, Take-profit and target price based on the DCF model — **Stop-Loss and Take-Profit and the DCF price target for your selected stock**

Similarly, if you haven’t bought your desired stock yet, a short-term approach would be to wait for an attractive entry point (say, a dip in price despite unchanged fundamentals) rather than rushing in at a high.

Long-Term Perspective

Long-term investors, by contrast, focus on sustained fundamental trends and the company’s outlook over years. If you have a multi-year horizon, you might hold through short-term volatility or one-off disappointing quarters, as long as you believe the long-run growth story and competitive advantages are intact.

For instance, if a company’s earnings slip in one quarter due to a temporary issue (maybe a supply-chain delay or a short-term spike in costs), a long-term holder might view that as no reason to sell as long as the overall trajectory (growing revenue, innovation, expanding market) is positive. In fact, such dips can be opportunities to buy more shares at a discount if you’re confident in the business.

Long-term investors will lean heavily on the fundamental momentum analysis discussed earlier: consistent multi-quarter or multi-year improvements justify patience and continued holding. However, if the fundamental momentum turns negative and stays negative over an extended period (say, earnings and cash flow declining year after year), then even a long-term investor must confront the possibility that the company’s fortunes have changed. In that case, “holding for the long term” only makes sense if there is a clear reason the company can turn itself around in the future.

Mixing Both Views

It’s often wise to incorporate elements of both approaches. Even as a long-term investor, you should stay aware of short-term indicators that might signal a change in trend. For example, if a company’s quarterly results start consistently underperforming expectations or its CEO suddenly resigns, those short-term signals could foreshadow longer-term issues – perhaps warranting a reevaluation of your thesis.

Conversely, if you are a short-term trader, understanding the company’s fundamental quality can help you avoid knee-jerk selling of a great stock on minor news. A strong fundamental backdrop means any short-term dips might recover quickly.

Your personal risk tolerance and goals will determine how much weight to give short-term price action versus long-term fundamentals.

In practice, whether you lean short-term or long-term, the core analysis remains the same: know what you own. By continuously monitoring the fundamental momentum and relative valuation of your stock, you put yourself in the best position to act decisively when conditions warrant a change.

Key Signs It May Be Time to Sell

Let’s summarize some clear signals that indicate you should consider selling your stock (or not buying it, if you haven’t yet):

Fundamental Deterioration: The company’s fundamentals are trending downward over multiple quarters. This could mean revenue declines for several periods, earnings per share dropping consistently, profit margins eroding, or return on equity falling well below its historical norm. One quarter of bad results can happen to any company, but if you see a pattern of back-to-back declines in the key metrics with no convincing explanation or plan for recovery, it often foreshadows further stock weakness. For example, if a retail company has reported year-over-year sales drops for three straight quarters and shrinking profit margins due to higher costs, these are strong signs the business is struggling – a scenario where selling is prudent to protect your capital.

Negative Fundamental Momentum Score: If you’ve quantified a “momentum scorecard” for the stock (by scoring each quarter’s improvement or decline in earnings, ROE, etc.), a negative overall score is a red flag. This means most of the changes are in the wrong direction – e.g. earnings and margins declined quarter-over-quarter repeatedly. A negative fundamental momentum score isn’t an automatic sell in every case, but it should raise serious caution. It implies the company has been underperforming recently. Unless you have strong evidence that the trend will reverse (perhaps due to a new product cycle or a known one-time issue that’s now resolved), continuing to hold a stock with deteriorating fundamentals is risky. Often, it’s better to step aside (sell) until the company proves it can turn things around.

Overvaluation Relative to Peers: The stock’s valuation looks stretched compared to its industry. If the P/E ratio is extremely high versus peers and the market, and especially if growth has slowed, the stock may be overpriced. Similarly, if other valuation measures (EV / FCF, OCF / Sales) are out of line with competitors without good reason, the market may eventually correct that by lowering the stock price. Being on the wrong side of a valuation gap can be dangerous – when sentiment shifts, high-valued stocks can fall hard. If you identify that your stock is priced for perfection (or beyond) while offering average performance, it could be time to sell and possibly rotate into a stock that offers better value.

Better Opportunities Emerge: Sometimes you might sell not because your stock is terrible, but because you found a much better stock. If another company in the same sector shows superior fundamental metrics (higher growth, profitability, lower debt) and its stock is reasonably priced, it may offer a better risk-reward profile. Capital in the stock market is limited; selling one stock to buy a more promising one is part of active portfolio management. For example, suppose you own Stock A, which is fine but has modest growth and average ratios, and you discover Stock B (a peer) which has faster growth, higher margins, and a lower P/E. In such a case, it could be wise to sell A and invest in B. Essentially, don’t let loyalty to an existing holding stop you from upgrading to a stronger company.

Company-Specific Red Flags: Beyond the numbers, consider qualitative factors. If there’s a significant negative development – like top management turmoil, accounting irregularities, loss of a key customer, or a technological disruption – these can undermine the investment case. Often, such issues will eventually show up in the financials (and in fundamental momentum), but by the time they do, the stock might have already dropped. If you believe a company’s competitive position is weakening or its strategy is failing, that is a good reason to sell even if the last earnings report looked okay. Trust your due diligence: for instance, if a pharma company’s drug trial failed or a tech company’s flagship product is getting obsolete, the writing may be on the wall for future earnings declines – better to exit before those declines materialize.

In all these scenarios, the overarching principle is: don’t hold a stock out of habit or hope when objective signs point to trouble. It’s usually better to sell sooner rather than later in the face of fundamental weakness. By selling, you preserve capital that you can reallocate to more promising opportunities or keep as cash until the right time. Remember, avoiding a big loss can be just as valuable to your portfolio as scoring a big gain.

Key Signs to Hold (Or Even Buy More)

On the other hand, here are signals that staying invested (or buying in) is likely the right call:

Consistent Fundamental Improvement: The company shows positive fundamental momentum – steady growth in earnings, revenue, and cash flow over multiple periods. If each quarterly report brings higher sales and profits, it’s a strong indication the business is thriving. Holding onto such a stock is usually wise because the market typically rewards consistent performers with a rising share price over time. If you don’t yet own the stock but see this pattern (and expect it to continue), consider initiating a position. For instance, a company that has grown its earnings 15%+ year-over-year for several years and continues to capture market share is demonstrating the kind of reliable growth that long-term investors seek. As long as you’re not massively overpaying for it, that’s a stock to accumulate or hold tightly.
High Quality vs Peers: When you compare key ratios, your stock stands out as one of the best in its peer group. Perhaps it boasts the highest ROE, robust profit margins, and a solid balance sheet, all while trading at a fair valuation. These are hallmarks of a quality company. If the business also has a sustainable competitive edge (like strong brand, patents, or network effects), holding for the long run can lead to substantial gains as the company compounds its value. An investor should be reluctant to part with a stock that consistently beats its competitors on fundamentals – these are often the long-term winners. In fact, market dips can be opportunities to buy more shares of such high-quality companies. As an example, imagine a scenario in the banking sector: Bank X has lower bad-loan rates, higher return on assets, and better efficiency than all its rivals. If Bank X’s stock temporarily falls due to general market turbulence, a savvy investor would hold (since the fundamentals are intact) or even add to their position, expecting the stock to recover and reach new highs.

Reasonable Valuation and Upside: The stock’s valuation is still reasonable relative to its growth outlook. Just because a company has done well doesn’t mean it’s time to sell – the crucial question is whether the current price still offers upside. If the P/E and other ratios are in line with, or below, the company’s growth rate and industry norms, then the stock may have room to run. For example, if your stock has a P/E of 18 and is growing earnings (EPS) at 20% annually, it’s arguably still a good value. Contrast that with a situation where the stock trades at a P/E of 50 with 5% growth – that would be a warning. The sweet spot for holding (or buying) is a strong company whose future growth isn’t fully appreciated by the market yet. In that case, you benefit from both earnings growth and potential valuation expansion as more investors recognize its strengths.

Strong Cash Generation and Dividends: Another sign to keep holding is if the company generates strong free cash flow and, if applicable, pays a healthy dividend that grows over time. This is especially relevant for income-focused investors and long-term holders. A business that can both reinvest in growth and return cash to shareholders (via dividends or share buybacks) is often a keeper. If you own a stock that increases its dividend every year and still retains enough earnings to fuel expansion, you have a win-win: you’re getting paid to hold it, and the company is still growing. Many blue-chip stocks fall in this category. Unless there’s a fundamental change, selling a stable compounding dividend stock might deprive you of future income streams and price appreciation. Only consider selling if something materially changes in the cash generation ability or capital allocation policy of the firm.

Market Underestimates the Company: You have reason to believe the market hasn’t fully recognized the company’s improvements or prospects. Sometimes a stock’s price doesn’t yet reflect recent positive changes – maybe the firm launched a promising new product line, or turned around a previously struggling division, but Wall Street is in “wait and see” mode. If your analysis of the fundamentals tells you the company’s future is bright yet the stock is still trading at a discount, holding on is the right move. In fact, this can be a signal to buy now if you haven’t already. You’re effectively getting in before the crowd. In scenarios where you have conviction (backed by data) that the earnings and returns will continue rising, patience can be richly rewarded. As the company delivers, more investors will likely pile in, driving the share price higher.

In summary, if the fundamental indicators are positive and the stock’s comparative metrics show it to be an industry leader, the default action should be to hold onto that stock. If you don’t own it yet, these same signs can answer the question of whether to buy now: strong fundamentals and fair valuation suggest that now is as good a time as any to start a position. By focusing on quality and momentum in the business, you increase the odds of being invested in winners and not getting shaken out too early.