Fundamental Analysis of Stocks - India Focus

Fundamental Analysis of Stocks - India Focus

Fundamental analysis will gives better understanding and foundation on investment decisions. When determining whether a company's stock is a good investment, fundamental analysis is a great tool to reach a conclusion. 

• What is a Fundamental Analysis?

          A fundamental analysis is all about getting an understanding of a company, the health of its business and             its future prospects. It includes reading and analyzing annual reports and financial statements to get an               understanding of the company's comparative advantages, competitors and its market environment.

• Why use fundamental analysis?

          Fundamental analysis is built on the idea that the stock market may price a company wrong from time to             time. Profits can be made by finding underpriced stocks and waiting for the market to adjust the valuation           of the company. By analyzing the financial reports from companies you will get an understanding of the               value of different companies and understand the pricing in the stock market.

After analyzing these factors you have a better understanding of whether the price of the stock is undervalued or overvalued at the current market price. Fundamental analysis can also be performed on a sectors basis and in the economy as a whole.

• True value of a stock?

          For a fundamental analyst, the market price of a stock tends to move towards its 'intrinsic value', which is           the 'true value' of a company as calculated by its fundamentals. If the market value does not match the               true value of the company, there is an investment opportunity.

Example of this is that if the current market price of a stock is lower than the intrinsic price, the investor should purchase the stock because he expects the stock price to rise and move towards its true value. Alternatively, if the current market price is above the intrinsic price, the stock is considered overbought and the investor sells the stock because he knows that the stock price will fall and move closer to its intrinsic value. To determine the true price of the company's stock, the following factors need to be considered.