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What Is Fundamental Analysis Of A Stock? by pawannrpa: 1:01pm On Jun 23, 2021 |
Fundamental analysis of stock is a wholesome approach to measure a security’s intrinsic value. This is done by taking into account several economic and financial factors. A fundamental analyst would look into anything that can affect the stock’s value. He/she would take several parameters like macroeconomic factors, the condition of the industry, the economic situation of the country, etc into consideration. The idea behind all this analysis is to produce numbers that can be compared with a stock’s current value and determine if the stock is over or undervalued. It is very important to make this analysis so that an investor can look beyond the daily stock movement and see the underlying fundamentals of the company. Simply put, a stock can shoot up due to any circumstantial factor for a day or two. However, in the long run, the same stock may not do so well as its fundamentals may not support growth. Types of Fundamental Analysis Qualitative Fundamental Analysis This approach is related to the overall nature and aspects of the stock that are not quantifiable. A company entangled in a legal battle will see its stock going down. On the other hand, a verdict in the favour of the company will push the stock up. This is how qualitative analysis works. Quantitative Fundamental Analysis This approach is all about numbers that can represent valuable information about the performance of the stock. Balance sheet, quarterly reports, etc. fall under this category. Advantages of Fundamental Analysis If the data is available, it can help in making sound decisions for short-term Helps in taking long-term positions on stocks Gives more than one set of data to look at for making decisions. Helps to understand the business in-depth Disadvantages of Fundamental Analysis Highly time-consuming Very subjective as too many variables are involved Specific to a company or a sector Too dependent on what data the company provides |
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