[COLUMN] Fundamental analysis for stock trading

YOU can use two primary approaches to analyze a stock: fundamental analysis and technical analysis.

  • Fundamental analysis involves looking at a company’s underlying business metrics, such as revenue, earnings and debt.
  • Technical analysis involves looking only at a stock’s recent price movements and identifying buy and sell signals in its chart.

Let’s take a look at how traders use fundamental analysis:

  • Fundamental analysis is a method of determining a stock’s fair market value.
  • Search for stocks that are undervalued.
  • Stock is undervalued if the current price is lower than the fair market value (a good buy).
  • Stock is overvalued if the current price is higher than the fair market value (expensive buy).
  • Stock is undervalued if it has low P/E (Price/Earnings) ratio.
  • Use fundamental analysis to measure intrinsic value by examining financial and economic data.
  • Technical analysis  looks at statistical trends of price and volume (instead of intrinsic value).
  • Fundamental analysis focuses on true value (while technical analysis identifies a good time to enter or exit a trade).
  • Fundamental Analysis is based on financial statements (whereas technical analysis is based on charts and price movements).
  • Be aware of macroeconomic factors such as the state of the economy (Currently, we have a recovering economy with threats of inflation) and industry conditions to microeconomic factors like the company’s management.

Elements of fundamental analysis include:

  • Earnings per Share (EPS).
  • Price to Earnings Ratio (P/E).
  • Projected Earnings Growth (PEG).
  • Price to Sales Ratio (P/S).
  • Price to Book Ratio (P/B).
  • Dividend Payout Ratio.
  • Dividend Yield.
  • Return on Equity.

* * *

Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation.

* * *

He retired after 50 years of defending taxpayers audited by the IRS, EDD, BOE and other governmental agencies.  He published a book on “How to Avoid or Survive IRS Audits” that’s available at Amazon. Readers may email tax questions to [email protected].

Victor Sy, CPA, MBA (retired)

Victor Santos Sy, MBA. CPA (Retired) Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation. * * * He retired after 50 years of defending taxpayers audited by the IRS, EDD, BOE and other governmental agencies. He published a book on “How to Avoid or Survive IRS Audits” that’s available at Amazon. Readers may email tax questions to [email protected].

The Filipino-American Community Newspaper. Your News. Your Community. Your Journal. Since 1991.

Copyright © 1991-2024 Asian Journal Media Group.
All Rights Reserved.