Fundamental analysis is the study of the combination of underlying company, industry, and economic factors that affect a stock’s present value with the aim of forecasting its future value. It aims to deduce a current fair value of the stock. If the derived fair value is unequal to the current price of the stock, the stock is said to be either under or overvalued. The current market price will ultimately move towards the fair value. Fundamentalists studying the analysis of stock markets believe them to be weak-form efficient. They tend to capitalize on the perceived price variations, and believe that the share prices are not accurate to mirror the available information.  Fundamental analysis is important, no doubt about it.  But at Company Invest, the main focus is technical analysis. Good fundamentals will tell you why to buy, while technical analysis will tell you when to buy.  You will see a little of both in Company Invest analysis.

In fundamental analysis, a top down approach is taken, starting with the economy as a whole, moving over to industry groups and then to specific companies. It goes without saying that all information is relative. The industry groups are compared with other industry groups, and companies are analyzed with others in the same group.

The economy as a whole can be likened to a tide with the individual companies, and industries are like boats. As the economy expands, more industry groups and companies grow and benefit. A shrinking economy hurts the sectors and companies which now decline. The economic fluctuations are linked to the level of interest rates. The rates are an important indicator for the stock markets as well. The economic forecast creates a scenario for the overall economy, and the investor can then delve down into its individual industry groups for trading the market.

In an expanding economy, certain industry groups profit more than others. An investor narrows the field to the most thriving groups among these. An aggressive growth oriented strategy may be best if the companies are expected to benefit from the economic expansion, and the risk in the equity market being low. In case of a shrinking economy, a more conservative strategy may need to be adopted, and stock investing of stable income-oriented companies should preferably be resorted to.

For assessing the potential of an industry group, its overall growth rate, importance to the economy, and the market size may be subjects to consider. As with individual industry, the industry group to which it belongs is likely to apply a greater influence on the stock prices. This is because, when stocks move, they do so in groups. Therefore, taken as an industry group, is more beneficial to the investor than a lone single stock. Presence in the right sector makes all the difference for the investor.

Within an industry group, the list of companies has to be narrowed down for detailed trend analysis. It is preferable to find the innovators and leaders within a group. The current competitive businesses within a particular group have to be identified, and their future trend studied. A study should be made of the ranking of companies according to product position and market share. This comparative trend analysis will help to identify companies having an edge over others and likely to succeed.

Fundamental analysis could next focus on the individual companies with sound finances, a reasonable business plan and solid management, leading to a competitive advantage over others.

COMPANY INVEST BOTTOM LINE

Both fundamental analysis and technical analysis data is critical to understand if you want to succeed in the stock market.   However, we at Company Invest primarily focus on technical analysis since stock charts are a measure of supply and demand and patterns often occur in predictable patterns.