how do you do your fundamental analysis and get fair value? for Company Analysis, i would look at the ratios because they are the easiest to tabulate - net Profit Margin. - P/E Ratio. - Book Value Per Share. - Current Ratio. - Debt Ratio. - Inventory Turnover. i understand there are other stuff like Economic Analysis and Industry Analysis some questions : - how do i look at these ratios and deduce that this stock is worth $1 and not $1.5? - how often do companies report these ratios? quaterly or annually? - would it be good to tabulate companies of the same industry and compare their to see who give the best sets of ratios. but what is "best set of ratio", how to compare? - is there any program to tabulate these automatically and nicely also, whats your take on http://www.sharesguru.com/valuationTools/cgviFormula.htm ? experts here pls teach a newbie like me :wink:
my fundamental analysis is not based primarily on #'s that are company specific and available on Edgar (because that info is so readily available, i think edges are less prevalent there) it is based on aspects of market share, overall market conditions, management, marketing skills, etc. etc. etc. it's kind of a lynchian approach, more so than a ben graham approach. this has provided me a decent edge, so i use it like for example PIXR back when the incredibles came out great management (Steve Jobs. ). good market share (and growing), and i saw capitalization on a market trend (providing an alternative in more wholesome and traditional values based movies. good marketing (this is obviously somewhat subjective), good market penetration (although i thought dreamworks was somewhat a threat), in a growing part of the movie market. then, to get VALUE, i wait for overreaction to so called bad news. news comes out that PIXR Incredibles dvd sales were "dissapointing". stock crushes downward. is it a good value HERE? yes, panic is a great place to buy fundamentally solid stocks. buy panic, sell euphoria. and i like the gap. so i buy. just purely crunching #'s is not the way i do fundamentals, but instead looking at management, market, marketing, market hype, public trends, etc. it also helps to invest "what u know". i happen to know a lot about pharmaceutical drug delivery methods. so, i make many investments in that realm. this helps you look beyond the moronic analysts and find REAL value
not to menntion at the time the news came out, and it gapped down, the chart (TA) was ALSO very solid. in fundies, in TA, or in a combo of both - confluence is always good. multiple confirmations to your buy
Problem is that Debt Ratios, Inventory Turnover, Current Ratios, and net profit margin tell you nothing about what a company is worth. Those are accounting tools you can use to determine the financial strength or weakness of a company but they will not tell you what it is worth or fair value. A company is worth what someone is willing to pay for it and whether that value is fair is quite subjective.
even for a daytrader, i think fundamentals have some value. they are not necessary, by any stretch. they are sometimes helpful.
so is this to say that numbers and ratio analysis has no value? i understand that ratio analysis is not everything they are just a component of the bigger analysis which include technical analysis, CANSLIM and other subjective stuff but surely there has to be some value to ratio analysis which increase our chances to pick a winning stock, right? if so, how do we deal with ratio analysis + other analysis to do the following? - how do i deduce that this stock is worth $1 and not $1.5? - how often do companies report ratios? quaterly or annually? - how does it tell if a company is fundamentally strong or weak - would it be good to tabulate companies of the same industry and compare their to see who give the best sets of ratios. but what is "best set of ratio", how to compare? - is there any program to tabulate these automatically and nicely