Fundamental Analysis of stocks – what is it?

Fundamental analysis in regard to the sharemarket is a method of assessing whether a company is a good investment using various sources such as financial statements, company announcements, disclosures and economic and industry reports.

It involves an academic approach and considers the overall economy, the industry in which the business operates and the Financial Health (see Lincoln Indicators, no affiliation) of the company. Fundamental analysis looks at both ‘quantitative’ data (eg. revenue growth, margins and financial ratios) and ‘qualitative’ data (eg. management strength, market position, patents and proprietary technology).

Using this method, the company’s valuation is based on past performance, industry trends, growth potential management and competition. Unlike the Efficient Market Theory (EMT), which says that all information is already reflected in current prices and therefore cannot be predicted, fundamental analysis believes that an intrinsic value may be derived and that investors can profit by buying ‘undervalued’ shares and, where short selling is allowed, selling ‘overvalued’ shares.  There are varying ideas on intrinsic value. See our post

Shares that are undervalued are those that have a higher intrinsic valuation compared to the current market price. Whereas, overvalue shares are those with intrinsic valuations less than the current market price. The assumption here is that in the long run, shares will move towards the intrinsic valuation or the ‘correct price’.

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Self-Managed Superannuation Service Providers in Australia. SuperBenefit provides a wholistic SMSF assistance, education and administration service continuum - 1. “assistance” is help of whatsoever nature where our overall SMSF experience and knowledge enables us to provide assistance/help without any legal (or “license”) limitations. 2. “education” involves providing knowledge through teaching, coaching and mentoring about all matters SMSF, including (but not limited to) investment issues such as equities and property, 3. “administration” encompasses all admin aspects of legally required SMSF trustee and member record keeping including (but not limited to) audit and ATO matters. In keeping with our key point that SuperBenefit does not provide Financial Advice, where issues arise from 1, 2, and/or 3 above Indicate a need for a legally authorized provider (such as a Financial Adviser) and the client does not have their own service provider, the client can utilize SuperBenefit’s ‘Connect Assist’ … SuperBenefit, in itself, does not provide Financial Advice, but it does provide the wherewithal for great SMSF service. WE do not provide Financial Advice or any other service that requires a legally authorized provider. However, where such advice or service is required we have our ‘Connect Assist’, a SuperBenefit resource we use to connect clients to a Licensed Advisor or other legally authorised service provider. Call us 0407 361 596, no obligation FREE Connection call to see how we can help you!
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