Overview
Fundamental analysis evaluates a stock's financial health, business model, and market conditions to determine its intrinsic value, helping investors make informed decisions.
Key Components of Fundamental Analysis
Financial Statements Analysis
- Income Statement: Revenue, expenses, and net profit trends.
- Balance Sheet: Assets, liabilities, and shareholder equity.
- Cash Flow Statement: Operational, investing, and financing cash flows.
Valuation Metrics
- Price-to-Earnings (P/E) Ratio: Stock price compared to earnings per share.
- Price-to-Book (P/B) Ratio: Stock valuation against its book value.
- Earnings Per Share (EPS): Indicator of profitability growth.
- Dividend Yield: Returns from dividends relative to share price.
Industry & Market Analysis
- Competitive Position: Assess company standing within the industry.
- Economic Indicators: Interest rates, inflation, and GDP trends affecting stock values.
Qualitative Factors
- Company Leadership: Management experience and decision-making effectiveness.
- Business Model Sustainability: Long-term viability and revenue streams.
- Market Sentiment & News: Investor perception and recent developments.
Common Pitfalls & How to Avoid Them
- Overlooking External Factors: Consider industry trends alongside company performance.
- Focusing Only on Short-Term Data: Prioritize long-term financial health.
- Ignoring Risk Factors: Examine debt levels and market volatility.
Tools & Resources
- Financial statement databases for corporate analysis.
- Investment research platforms with stock valuation metrics.
- Economic forecasting tools to assess market conditions.