Fundamental analysis of stocks
Due to the speculative nature of stock prices, it is almost impossible to predict the future price of stocks. Stock prices are mainly due to the perception of investors on business performance and manage the future growth expected. But this hypothesis on the growth of future stock prices is not scientific. Technical analysts do detailed monitoring of price action to predict future stock prices, but this is not scientific and leave lots of information for speculation. The fundamental analysts like Warren Buffett also believes that the future prices of stocks and shares to buy, but the difference between Warren Buffett and technical analysts, the word “fundamental”.
Relationship between stock prices and fundamentals
Warren Buffett does not estimate the price of the shares on the fundamental analysis of corporate performance. Simply put, we can say Warren Buffett is trying to establish a relationship between the price on the stock market and business performance. But the fundamental analysis of shares is valid only for the long-term horizon. For short-term investment objectives of the technical analysis is more appropriate. When I say long term, it means the period of 10-15 years and short term means less than 3 years. Let me explain how fundamental analysis that is suitable for long-term investment goals. If we combine the market price of shares with the performance of companies, we need to preserve the company time to results.
If we shares today and next year we want to buy, that our values, while not scientifically is doubled, because the stocks are not lottery. The companies need time to get results indicate that a company stock is now $ 10 and the management has decided to invest $ 1,000,000 dollars to boost expansion and modernization of its facilities and profit margin.The project duration is 5 years to 5 years, so that you can not expect any significant appreciation in the share price ($ 10). But once the project is completed and the company begins to start in sales and profitability in the same, the increase of the share. But why the market price of the stock estimates for the expansion and modernization of the company?The answer is simple, reinforces the company’s expansion and modernization of the fundamentals of the company. If we say that the strengthening of our fundamental believe the following parameters to increase performance of the company,
Selling,
Profit and
Equity in the company.
Correlate the stock prices of companies whose fundamental
Here we are trying to learn and to correlate the price of the stock market with the fundamental business performance metrics such as revenue, earnings and equity. The aim is to lay the foundations of the last five years (for example) to study a company and try to predict the performance for the next 5 / 10 years. Each listed company in good standing will publish its financial statements as a balance sheet, profit and loss account and cash flow. Details of sales are profits and assets in these financial statements. Fundamental analysis of shares means the balance sheet, profit and loss statement, cash flow statement and the results with the price of the stock market correlate. The financial statements must be used to calculate the following performance parameters:
Sales / Share (SPS)
Income or earnings / share (EPS)
The net value – Depreciation / action (NWPS)
With the parameters of the above services we can investigate the behavior of the market prices of shares with all the changes in sales, earnings and net worth of a company. A study on the financial results of at least five years, one can understand the pattern of movements in stock prices. Select a company with the largest market capitalization companies such as following a pattern (ie financial performance) in a specific.