Fundamental Analysis of Stocks: Key Metrics & Real Examples
•By Mahersaham Team
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In this article, I will explain the techniques for profiting from stocks using fundamental analysis, complete with real examples. How applicable is it for stock investing on Bursa Malaysia or at the global level?
This is part of the stock analysis topic. Before starting your stock analysis, it is best if you already have a CDS account. If you do not have a CDS or trading account yet, visit What Is a CDS Account and How to Open a CDS Account with Mplus Online.
Below is a list of related fundamental analysis articles. You are encouraged to bookmark this page to make it easier to find fundamental analysis topics.
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Fundamental analysis in stocks is the effort to identify the true value, or intrinsic value, of a company.
There are many methods and schools of thought for calculating a company's true value. I want to emphasise here that stock investing is both an art and a science. There are things we can calculate, but there are also factors beyond what we can easily observe.
Fundamental analysis is most commonly used by long-term stock investors.
Investors who favour fundamental analysis aim to buy at a price below the intrinsic value -- a condition they call a discounted or undervalued price.
They believe that, given time, the stock price will rise back to match the company's intrinsic value -- a condition also known as Fair Value.
The quantitative aspect focuses on numbers and calculations. The primary source is financial statements. Among the most commonly used financial statements are the Balance Sheet, Income Statement, and Statement of Cash Flow.
The qualitative aspect is more subjective. This is because it relies on characteristics that are difficult to measure, such as the competence and credibility of a CEO or the company's management team, and brand recognition that is well-established in the market.
In all stock analysis, the goal is to find the right price for entry. In fundamental analysis, the ideal purchase price is a discounted price.
How do you know if a price is discounted or not? Discounted relative to what?
Not many will teach fundamental analysis and how to find undervalued stocks in beginner-level classes. This may be one of the reasons why our investing community is more exposed to technical analysis alone.
In brief, those who use stock analysis fall into two schools:
In reality, value and growth should be combined -- valuegrowth investing.
This point is frequently emphasised by the renowned investor Warren Buffett. In one of his letters to shareholders, Warren Buffett wrote:
But how, you will ask, does one decide what is "attractive"? In answering this question, most analysts feel they must choose between two approaches customarily thought to be in opposition: "value" and "growth." Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing.
We view that as fuzzy thinking (in which, it must be confessed, I myself engaged some years ago). In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive.
In addition, we think the very term "value investing" is redundant. What is "investing" if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value -- in the hope that it can soon be sold for a still-higher price -- should be labelled speculation (which is neither illegal, immoral nor -- in our view -- financially fattening).
The key takeaways are:
The required capital depends on several factors, including your time horizon, your personality as an investor, and your risk tolerance.
You can read more about capital requirements in the following article: How to Invest in Stocks With Small Capital.
However, I suggest you complete the full tutorial list at Comprehensive Stock Investment Guide.
On Bursa Malaysia, there are actually many techniques we can use, but they require a thorough process to find the best entry point with each technique.
So this time, I will teach you how to profit on Bursa Malaysia using the fundamental analysis technique. This technique is relatively safe because we are looking for counters with strong fundamentals.
In this technique, we focus on several important terms. These terms combine to form a powerful strategy.
Earnings refers to the profit earned by a company. Every quarter and every year (annual), companies must announce their financial reports, and within these reports we can see the company's earnings.
What do we need to know? We need to know how much profit the company is making. To assess earnings, we look at two important things:
In the Financial Information section, there are several terms you absolutely must know. These include:
Many of you must be wondering how to conduct this research. This technique is very straightforward and does not require any powerful software. You only need to use malaysiastock.biz.
We can obtain all the information I have shared above from this website. Once you have gathered your research, try listing your findings. Then we can see the details clearly.
Here is an example of how to list your research. This is just an example of how to list -- it is NOT a buy call signal!
Once you have completed your listing, you will feel more confident. Then you will know exactly what decisions to make. Others will also recognise you as a knowledgeable investor.
Once your research is complete, we move on to planning. Planning is about setting your goals.
How long do you intend to hold, and how much profit do you expect?
For example, you target an entry price of RM0.910 and plan to exit when it reaches RM1.00.
This is your primary objective!
So regardless of what happens, your focus is RM1.00!
You might reach this target price within 1 day, 7 days, or perhaps 2 weeks.
All of these scenarios are possible, but because you already have a plan, you do not need to worry. You must also set a cut-loss level.
During planning, you decide what kind of trader you want to be. Some prefer short-term, others mid-term, and some long-term.
It all depends on your temperament. If you cannot wait for a year, then you cannot be a long-term investor. Perhaps mid-term is more suitable for you.
Once you have completed everything I have discussed above, you will possess a piece of research that you can be confident in, and it will be immensely useful.
You will no longer need to follow anyone else's buy calls. The technique I have described focuses more on mid-term and long-term trading.
It may seem simple, but many people overlook this straightforward technique that could potentially deliver returns of more than 50% within 3 months.
Furthermore, this technique reduces the risk of losing your capital in the stock market, because you have conducted thorough research and only buy companies with strong fundamentals.
Fundamental analysis is a method of studying the true value (intrinsic value) of a company based on financial data such as earnings, revenue, ROE, and market capitalisation. Its main objective is to find undervalued stocks to purchase at a discounted price.
Fundamental analysis evaluates a company's financial health and true value using financial reports, whereas technical analysis studies price movements and trading volume through charts. Both can be combined for more accurate investment decisions.
Use websites such as malaysiastock.biz to check criteria like ROE exceeding 10%, increasing revenue and profit trends, and consistent quarterly reports. An undervalued stock has a market price below the company's intrinsic value.
Fundamental analysis is more suited for medium to long-term investing. The market may take weeks to years to reflect a company's true value, so patience and careful trade planning are essential.
Successful investing starts with solid knowledge.
Investment Basics:
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Open a CDS Account:
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Further reading: