Investment gurus say, “Do your research before investing!” But how? This post should give you a good place to start.
What Is Fundamental Analysis?
It is advisable to conduct research to find good companies before placing a trade to buy its stock—essentially, becoming one’s own stock analyst. Generally speaking, a good company will exhibit certain characteristics that fall into both the growth and value categories. A branch of investment analysis that can identify these traits is fundamental analysis.
Fundamental analysis attempts to measure a stock’s intrinsic value by examining related economic and financial factors, including the company’s balance sheet and strategic initiatives, microeconomic indicators, and consumer behavior.
What are Stock Fundamentals?
The phrase “a stock’s fundamentals” is bandied about quite a bit in the investment arena. What exactly does it mean? Simply put, it is any company-specific data that can impact the perceived value of that company’s stock price. It can be expanded to include other related companies (for example, one might hear about the fundamentals of an entire industry or sector), but it mainly references an individual company’s financial data. This can be found in its financial statements.
- A stock’s fundamentals attempt to quantify its real or fair market value.
- A stock’s fundamentals include quantitative data such as the company’s revenues, earnings, return on equity, and profit margins.
- A stock’s fundamentals can also include qualitative measures such as the company’s business model, competitive advantage, brand-name recognition, patents, and effectiveness of its top management.
Where to Find News and Research
Finding news and research for a company can be time-consuming, but it is quite important for anyone considering investment in that company’s stock. A good place to begin is by going through the documents that a publicly traded company is required to disclose per regulatory authorities. In the United States, this is the Securities and Exchange Commission (SEC). Most major banks have analysts who put out research on the companies that they cover. Most will also include recommendations.
There are also third-party entities dedicated to conducting in-depth research of companies. Most brokerage houses, whether full-service or online, provide access to some of this research. Additionally, stock screeners (e.g., finviz.com) are a good tool to filter out stocks based on the investor’s criteria for investing. One can also search online for any news relating to that company or industry. But care is warranted, as some of these sources may not be credible.
- A 10-K is a comprehensive report filed annually with the SEC by public companies that includes corporate history, financial statements, earnings per share, and any other relevant data.
- A 10-Q is a comprehensive report filed quarterly with the SEC that provides investors with information that they can compare to previous periods to evaluate the outlook for a stock’s performance.
- Yahoo! Finance, StockFetcher, ChartMill, Zacks, Stock Rover, and FINVIZ offer some of the best free screeners.