What is Fundamental Analysis and how to use Fundamental Analysis to pick stocks to buy? You should read this post and watch the videos I’ve included below to easily understand this method widely used by investors in choosing a company to invest with.
If you’re investing and trading in the stock market, I’m sure you’ve heard of fundamental and technical analysis but you don’t want to know of them that much because they sound so complicated and technical. Perhaps you attended a seminar about them and you got the concepts but when you went home, nothing sank in your brain.
I understand the sentiment that is why I made this post to share the best, easiest and amazing way I learned about basic Fundamental Analysis without too much confusions. Ok, let’s start.
What is Fundamental Analysis?
The stock market puts the price tags from the buyers and sellers of stocks. How would you know if the stock price they offer is cheap or expensive? The answer is Fundamental Analysis.
It is simply analyzing the company’s fundamentals (P/E, P/BV, EPS, Debt/Equity, Return on Equity, Net Profit Margin), to determine if the stocks you want to buy from it are worth it.
Fundamental also means important basics.
Why should we use Fundamental Analysis?
Because it is based on facts, not opinions. The latest figures from the company’s Balance Sheet, Income Statement and Cash Flow Statements determine if the stock being offered to you is undervalued or overvalued.
Because you are looking and analyzing for the most important criteria to determine the company’s worth.
Because in buying stocks, you should be looking for a company that has the following criteria:
- Stable growth
- Strong Balance Sheet
- Long term corporate life
- Great management
- Less Debts
- High Profit
- Huge Cash Reserve
How to use Fundamental Analysis in choosing stocks to buy?
Right now, there aren’t many tools to evaluate a good stock in the PSE using fundamental analysis. If there are, they are only for exclusive banks and brokers. Honestly, even the tools from online broker platforms are very basic. There are available comprehensive tools that can follow your market indicators in a snap but they are for big stock markets like NASDAQ, NYSE and the like.
You no longer have to compute for a company’s P/E, EPS, P/BV ratios etc. because some tools and market sources already provide them but you need to use 4 sources or more. Luckily, there is one app that provides just everything we need to analyze the fundamentals of a company.
I’m sharing here the tool I use for fundamental analysis.
It’s called Bing Finance. This is the newest tool from Microsoft although MSN Money is still available.
Bing Finance is an app and it’s automatically available if you use Windows 8 and higher. You can also download it for free if you have the latest version of Microsoft Silverlight in your Windows computer. You can also download it if you have any other Windows phone or tablet.
I made a one-minute video below to show you how easy it is to see all the important values you need in fundamental analysis.
In the video above, I checked out SMPH. Using this app you can determine if the stock you want to buy is cheap in terms of price to book value ratio, price to earnings ratio. Usually, (but not all cases) the lower the P/E and P/BV, the better. I follow a certain margin for these ratios. You can also see the company’s Revenue Growth, Net Margin, Return on Assets, Return on Equity, Net Income, Revenue, and Cash Reserves which can help you decide if the company is worth investing with right now and for a long term.
Want to invest on stocks? You really should start it because it’s very rewarding.
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