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Fundamental Analysis

The document discusses the concept of fundamental analysis, which is a method of evaluating stocks based on internal factors like financial statements, management, and products of a company as well as external factors like the economy and industry to determine the company's intrinsic value and compare it to the current market price. Fundamental analysis aims to identify undervalued stocks by conducting an analysis of the economy, industry, and company to estimate future performance and find stocks trading below their intrinsic worth. The goal is to make informed investment decisions by determining what the fair price of a stock should be based on its fundamentals.

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84 views26 pages

Fundamental Analysis

The document discusses the concept of fundamental analysis, which is a method of evaluating stocks based on internal factors like financial statements, management, and products of a company as well as external factors like the economy and industry to determine the company's intrinsic value and compare it to the current market price. Fundamental analysis aims to identify undervalued stocks by conducting an analysis of the economy, industry, and company to estimate future performance and find stocks trading below their intrinsic worth. The goal is to make informed investment decisions by determining what the fair price of a stock should be based on its fundamentals.

Uploaded by

aruncbe07
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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FUNDAMENTAL ANALYSIS

“The greatest of all gifts is the


power to estimate things
at their true worth”
Primary motive of buying shares is

 Dividend
 Capital Appreciation
FUTURE DIV & CAP APP
 Determined by

– Performance of the company


– Performance of the industry
– Performance of the economy

Such an evaluation/analysis is
FUNDAMENTAL ANALYSIS
 Not every stock that an investor
invests in provides good returns.

 It requires learning the right


techniques.

 Stock picking is a science.


“One who abandons duty merely
because it is
difficult or fear of it
does not get the benefits”
Fundamental Analysis

FA is a logical and systematic


approach in estimating the
future dividend and share price.
Fundamental Analysis
 Basic premise of FA is
– Performance of the company

– Performance of the industry to which the


company belongs to.

– Performance of the economy where the


industry is.
Fundamental Analysis
A stock’s price changes due to

– Economy-wide factors : 30 – 35%


– Industry factors : 15 – 20%
– Company factors : 30 – 35%
– Other factors : 15 – 25%
Fundamental Analysis

A detailed analysis of the


fundamental factors affecting the
performance of companies

It is just like planning the entire war


Fundamental Analysis
FA is an approach to determine
“ What ought to be the price”.

Economic worth of share is


identified.
Fundamental Analysis

That is known as
“Intrinsic value”
or
“Fundamental Value”.

The goal of analyzing a company's


fundamentals is to find a stock's intrinsic
value
Fundamental Analysis

“Intrinsic value” is compared with


the market price.
Fundamental Analysis

If, Market Price < Intrinsic value

Then the share is Under-priced.

“BUY”
Fundamental Analysis

If, Market Price > Intrinsic value

Then the share is Over - priced.

“SELL”
HICCUPS OF IV/FA
 Considers Q & Q
 It is the discounted value of cash
that can be taken out of a business
during its remaining life
 It’s an estimate only
 Different IVs are possible
 Needs to be updated
Fundamental Analysis

 Therefore, a follower of
fundamental analysis is guided by
value
Fundamental Analysis
 FA provides an analytical
framework for rational investment
decision making

Called as
“EIC Frame Work Analysis”
Fundamental Analysis

Don’t buy or sell shares on the


basis of rumors or tips.
Fundamental Analysis

Go for and do detailed analysis

Resulting

“INFORMED INVESTING”
Fundamental Analysis

FA aims not to make speculative


profit

(Which needs - Frequent entering, exiting


and switching)
Fundamental Analysis

FA aims to avoid the risk of loss


from

Buying an over-priced stock


&
Selling an under-priced stock
Fundamental Analysis
What Fundamentalists do?

BUYS if the CMP = Intrinsic Value

“FAIR PRICE” therefore


normal returns

BUYS Under-priced stock, therefore


Abnormal returns
Who bothers FA?
 Value investor
 looks for stocks with strong
fundamentals - including earnings,
dividends, book value, and cash flow
 Essence: Find
F companies trading below their
intrinsic worth (under-valued) and poised to
grow in long-term
Fundamental Analysis

Company Analysis
Industry Analysis
Economy Analysis
Fundamental Analysis
Order of FA
Economy Analysis

Industry Analysis

Company Analysis

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