Fundamental Stock Analysis for Smart Investing

The goal of fundamental analysis is to determine stock fair value, based on several factors that affect company’s business. It also covers economies and industries, whereas technical analysis points to just the price movements. With fundamental analysis, investors can examine profitability, growth of revenues, methods used for controlling costs, competitive advantages and their sustainability, prospects of the company’s industry, value of the firm’s trademark, debts, and so on.

Fundamental Stock Analysis and the Basics

Fundamental analysis is about researching company’s fundamental factors linked to its welfare and growth. This entails analyzing the market share, statements, and quality or the value of company’s trade mark or patents for example. If you consider the fundamental stock analysis of a reputed firm, the quantitative part of research would examine its revenues, price book ratio, profit, price earnings ratio, growth, price sales ratio, debt to equity ratio and various other ratios. Nevertheless the analysis would be imperfect if you don’t consider the brand, which might be something well recognized globally. Even then, it is not easy to deduct the exact worth of the brand.

Like technical analysis, fundamental stock analysis too has its share of assumptions. An important assumption here is that the stock market doesn’t mirror the spot on value of the stock in every instant. So stock is usually undervalued or overvalued. Another assumption is that stock market will price fairly the company in the long run. So it is good to purchase undervalued stock and hang around till the market understands its real worth. Ultimately you will profit when stock market price will equal its intrinsic value, but, this may well take years.

So, it is all about a firm’s intrinsic value and purchasing the most undervalued stocks with great prospects. Once you do this, you can sit back and wait. Certainly, you have to evaluate all the new gathered info about the firm to ensure that the situation did not alter much, that intrinsic value has not dropped radically and is not considered as prominent investment any more. When you estimate the company intrinsic value, you can’t be sure whether your assessment is right. Also, you never know the exact time when the market will realize the true value of the stock.

“Intrinsic value refers to the value of a security which is intrinsic to or contained in the security itself. It is also frequently called fundamental value. It is ordinarily calculated by summing the future income generated by the asset, and discounting it to the present value. Simply put, it is the actual value of a security as opposed to the market or book value.” – source wikipedia

When building your investing and margin trading strategy, you should combine both fundamental stock analysis and technical analysis. Be rational and logical here; it is better to be fairly skeptical before jumping into action.

 

You can leave a response, or trackback from your own site.

One Response to “Fundamental Stock Analysis for Smart Investing”

  1. […] for the right turn over of the returns at the right time. This might require a combination of fundamental stock analysis and technical analysis to increase investing success.Stocks and investmentsStocks are the […]

Leave a Reply

You must be logged in to post a comment.