A method of evaluating a security to measure its intrinsic value by examining related economic, financial, and qualitative factors.
Fundamental analysis is a method of evaluating a security to measure its intrinsic value by examining related economic, financial, and other qualitative and quantitative factors. It answers the question: Is this stock cheap or expensive?
Fundamental analysts study everything that can affect the security's value, from macroeconomic factors (like interest rates and GDP growth) to company-specific metrics. They study balance sheets, profit & loss statements, cash flow statements, competitive advantages (moat), management quality, and financial ratios like P/E (Price-to-Earnings), P/B, and Debt-to-Equity.
Fundamental analysis is the cornerstone of long-term investing. It helps investors identify high-quality, profitable businesses that are trading below their true value. By understanding a company's financial health, investors can build conviction to hold stocks through market volatility.
You study Infosys and find that its revenue has grown by 15% annually, it has zero debt, a high return on equity (ROE of 30%), and the P/E ratio is lower than its historical average and its competitors. Based on this, you conclude that the stock is undervalued and buy it for a long-term investment.
Both have their place. Fundamental analysis is best for deciding 'what' stock to buy for long-term investments. Technical analysis is best for deciding 'when' to buy or sell for short-term trades. Many investors combine both styles.
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Download Free Android AppA trading discipline used to evaluate investments and identify trading opportunities by analyzing statistical trends from trading activity.
Price levels on a chart where a stock price tends to find buying support (floor) or selling pressure (ceiling).
A type of financial chart used to describe price movements of a security, showing open, high, low, and close prices.