In Fundamental analysis, we search for a stock that is trading at prices higher or lower than its real value.

If the real value is higher than the market price, then the stock is considered to be undervalued.

In technical analysis, the fundamentals are ignored and a study of the historical trends in the price of the stock is considered.

Fundamental Analysis tries to determine whether the stock is of fair value in a broader market and is done from both macro and micro perspectives to identify securities that the market has incorrectly priced.

Usually, the overall economy of the country and the strength of a particular industry is considered before studying the performance of an individual company to determine the fair market value of a stock.

Data available in the public domain such as the financial statement of a company is used in Fundamental analysis to value a stock or any other kind of security.

Data on revenues, earnings, future growth prospect, return on equity and

profit margins are used to determine the underlying value of the company and its potential to grow in the future.

The fair value thus arrived is only an educated opinion of the analyst as to what the share price should be when compared to the present market price of the stock.. This price is also referred to as the intrinsic value of the company.

When an analyst considers the value of the stock to be significantly higher than its market price, a buy recommendation is given to investors. If on the other hand the value of the stock is considered to be significantly lower than its market price, the value to be lower than the current market price, a buy recommendation is given to investors.

In fundamental analysis, the company’s customer base its market share, competition, industry-growth, regulations affecting the industry, and business cycles are considered. Understanding how specific industries works will give the investor a better understanding of the financial health of a company.

Financial statements of a company are a medium through which a company discloses information regarding its financial performance. These financial statements help investors to make decisions on investment. These financial statements include balance sheets, income statements, and cash flow statements.

Some of the terms used in fundamental analysis

Valuation: It is a technique that estimates the present worth of any asset or company.

Intrinsic Value: It is the calculated value of any investment, company, or asset.

Absolute Value: It is a measure of the intrinsic value of the asset or company.

Stock analysis: It is the valuation of a stock or any trading instrument or investment sector, or even the whole market. It is an attempt to determine the activity a sector or an instrument, or the market in the future.

Overbought: The term refers to a stock that traders consider the price to be above its fair value and could face downward correction very soon.