If you are searching for an effective way to do a fundamental analysis of shares.
You are on the right page!
Here in this article, I included my personal method of how I do a fundamental analysis of shares.
Hello, Traders and Investors welcome to “MultibaggerCalls.com”. Today I’m going to explain how to do a fundamental analysis of shares.
If you’re a beginner in the stock market, then you need to know about the impertinence of fundamental analysis in the stock market.
And how to do a fundamental analysis of Indian shares for better profit.
To perform the analysis process explained in this article you need to use any stock screener.
Read the complete article I’m sure you definitely get something new from this article.
What is Fundamental Analysis?
Fundamental analysis is the analysis of the valuation and future growth of the company/Industries.
This type of analysis helps to identify the Revenue growth, Future demand for product/services, Management quality, Micro and Macro factors which affect company/Industries growth.
Fundamental analysis is mostly followed by Investor who invests in stock for the long-term.
Fundamental analysis is equally important as technical analysis.
Note:- The Fundamental analysis is mostly used for shares, But You also can use fundamental analysis for any securities/bonds/commodities.
Types of Fundamental Analysis.
Fundamental analysis is a basic analysis that helps you to understand the current situation of the company and future growth potential.
Fundamental analysis is divided into two-part:-
- Quantitative Analysis
- Qualitative Analysis
Quantitative Analysis:- Quantitative analysis is measured in numerical terms or the study of financial statements of companies to find financially strong shares.
Under quantitative analysis, we need to check some points like:-
- EPS (Earning per share)
- PEG Ratio
- Net Sale
- ROIC (Return on invested capital)
- Positive Net Operative Cash Flow
- Growing Book Value per share
- Growing or Stable Margins
Qualitative Analysis:- Qualitative Analysis is a quality analysis of Company Management, Business model, Checking future demand for company products/services, Competition in business, etc.
Under Qualitative analysis, we need to check some points like:-
- Competitive Moat
- Decreasing or Low Debt
- Promoter Quality
Let check in detail how to do a fundamental analysis of shares using all these points.
How To Do Fundamental Analysis Of Shares?
Every trader/investor has their own way of analysis. Here I’m going to explain my own strategy of fundamental analysis.
Which I’m learned from different sources and my own experiments.
If you guys follow all these points carefully, then I’m sure you will never face any loss.
Because the company can manipulate some details but they can’t manipulate all details.
So, If you do a fundamental analysis by following all these points and you found any stock without skipping any point.
Then that stock never gives a loss in long run.
I’m sure this article gives you a complete solution to your question of how to do a fundamental analysis of shares?
EPS (Earning per share):- Earning per share represents the a profit company makes on each share.
Earning per share should be consistently increasing. EPS growth of over 15%-20% change is good for the company.
PEG Ratio:- A stock with a PEG ratio less than 1 is good, as it’s valued due to its future earnings growth.
Net Sale:- Net sales should be consistently increasing. Increasing sales show the company is doing good at acquiring new customers.
Higher sales will turn into higher profits. Steadily increasing sales is good.
ROIC (Return on invested capital):- ROIC should be greater than 15% compounded.
High ROIC shows the company is using funds from profits effectively. An efficient company will use less capital to make more investor benefits.
It should be compared to a company’s cost of capital to determine whether the company is creating value.
Positive Net Operative Cash Flow:- Net operating cash flow is the actual cash generated by a company from its business.
Positive operating cash flow shows the company is making enough money from its day-to-day activities.
It doesn’t have to rely on outside funds to run the daily business.
Struggling companies may show significant positive investing cash flow from the sale of assets to cover operations and debt repayments.
Growing Book Value per share:- Growing book value per share means the net assets/value of the company is increasing.
Assets like real estate. Price/book value is used for comparing shares with similar growth.
In the case of demerger/asset sale, investors will get the benefit.
Growing or Stable Margins:- Margins represent what percentage of the sale is being done as profits.
Increasing NPM/OPM is a good sign. Multibagger at the start, but they improve it.
Margins can be relative to a sector. Some have high. Some have low.
Margins indicate the efficiency of business medium sales of high margin will give good money.
It’s perfectly acceptable to have low-profit margins with rapid inventory turnover.
Competitive Moat:- Moat prevents competition, maintains sales and growth.
Decreasing or Low Debt:- High Debt is poison, Interest cost may kill the business. So, always choose Low debt to equity ratio.
Promoter Quality:- Promoter quality is very important, An excellent transparent promoter will take decisions only in favor of investors.
By following fundamental analysis, You can find stock having the potential to become Multibagger.
There are lots of things included in the fundamental analysis. The above are some main points, Which consider during fundamental analysis.
I hope now you understand how to do fundamental analysis of shares. If anyone has any queries or suggestion please ask in the comment box.