Fundamental analysis

Fundamental analysis

Fundamental analysis is also refers to Qualitative analysis.  Which involves finding intrinsic value of the scrip or company.  In other words Qualitative analysis helps finding the company value in future with the help of company’s present ratios like P/B, PEG, ROI etc.

Whenever an investor desires to invest in a company for a log term, it is essential to understand company’s business and understanding the underlying business performance.  We have much more examples in Indian market which gave 10,000% returns over years like Wipro, Divis Lab, HDFC etc.

Understanding fundamental analysis

Consider you have to buy a flat.  If real estate owner demand double of the value will you buy it? -absolutely no. How will you evaluate it’s price?   What you pay is price, but value of the flat is different.  Based on the location of the apartment, amenities and quality of the construction etc,. you will decide whether to buy it or not.

Similarly fundamental analysis helps to calculate intrinsic value of the share.  Based on this you can predict a stock is undervalued or over valued.  If it is undervalued you can buy.  Otherwise you should not buy, already you brought you should sell it.

Intrinsic value of the share.

Intrinsic value is the real value of the share.  It uses publicly available data like revenue growth,  PEG ratio, Debt to Equity ratio, Year on Year growth etc.  Process to find intrinsic value of the share is explained below.

Why fundamental analysis is important?

Although we can predict the market by technical analysis, why qualitative analysis is important ?

-Of course you can track market by technical analysis. But it will indicate when to buy and when to sell. The analysis won’t suggest to buy or sell opportunities for long term.

Follow the below guidelines to become a fundamental analyst 

  • Basic arithmetic addition, subtraction, multiplication, division along with percentage calculation
  • Basic understanding of financial ratios
  • Understanding financial statements like balance sheet, cash flow statement

Actual process

  1. Go to screener.in Sign up
  2. Go to bottom of the after login in to the screener.in
  3. Create search query
  4. Enter your query, based on your strategy
  5. You can also use some predefined popular screens to find good company

Strategy suggested by security analysis.

  1. PE between 5 – 20
  2. PB between 3 – 5
  3. PEG Ratio less than 1
  4. ROI more than 1
  5. Debt to Equity Ratio less than 1
  6. Promoter holding more than 55%
  7. Dividend yield less than 2

You can use below screener.in

Just copy past below query to screener.in’s search query field.

Although finding fundamentally strong scrip using screener is matter of seconds.

I personally use below strategy to screen fundamentally strong stocks.

Price to Earning > 5 AND
price to earning < 20 AND
Price to book value > 3 AND
Price to book value < 5 AND
PEG Ratio < 1 AND
Return on equity >1 AND
Debt to equity < 1 AND
Promoter holding > 55 AND
Dividend yield < 2

We will be happy to hear your thoughts

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