How to conduct fundamental analysis of stocks to make smart investment decisions?


There are many ways to select a stock. An investor can go by word of mouth, trends, or do a proper analysis called fundamental or basic analysis on the financial level and take a look at the key ratios of a company to understand whether the company is financially healthy.

In technical terms, fundamental analysis refers to assessing the intrinsic (basic) value of the stock based on competitors, financial statements, growth, income, revenues, expenses, and other financial aspects of a company.

However, the value of a stock doesn’t change overnight, you need to do a thorough analysis.

Factors to consider for fundamental analysis of stocks

  • Historical data
    Past performance of the stock can help you analyze how the stock has performed in the past and if it is a good bet for the foreseeable future or not.
  • Publicly known information
    Any company that is registered must make public announcements to its current and potential investors so that the public is aware of its trends, investments, and strategies.
  • Performance of the industry
    Unless the company you have conducted fundamental analysis on is a monopoly, you should consider analyzing the industry as well. The performance of the competitors, regardless of whether it is pharmaceutical, medical, healthcare, technology or IT, can help you gauge how investors are reacting to that particular industry.
  • Political and global factors
    One of the key fundamental analysis parameters for investing in stock market is understanding the political and global factors of the country. Numerous factors play a key role in determining the intrinsic value of a stock, including taxable benefits, support, and political backing.

Different types of fundamental analysis

  • Qualitative analysis refers to the fundamental analysis of a company’s brand value, the decisions made by the board, how the company handles crisis, proprietary technology of the company over a certain period, etc.
  • Quantitative analysis refers to analyzing a company’s financial statements and understanding the share prices of the company from past performance, key ratios, and other quantitative financial aspects.

How can you conduct fundamental analysis?

If you are looking to invest in the long term, it is essential to understand that company, the industry in which it operates from different perspectives. While technical analysis could help you with short-term gains, the fundamental analysis could help you make intelligent long-term investments.

You need to understand all the basic financial statements of a company that you select, along with knowledge of the sector/industry in which it operates to compare its performance with those of its competitors. For this, you can compare industry trends and keep yourself updated with daily news concerning that industry.

Why should you consider the fundamental analysis of stocks before investing?

The reason why fundamental analysis could be beneficial is that it separates short-term fluctuations from a fundamentally strong company’s performance over the long term, leading to an appreciation in its stocks, which results in the creation of wealth for you.

It could help you identify traits that separate a below-par company from an investment-worthy one. If these technicalities seem overwhelming and you are looking for other ways to make your stock market investments work for you, it is advisable to reach out to an expert who can curate bespoke plans based on your risk appetite, investment horizon, and financial goals.

Back To Top