Fundamental analysis is a method used by investors and analysts to evaluate the intrinsic value of a stock or other financial asset. It involves examining a company’s financial statements, economic and industry trends, and various other factors to determine whether a stock is overvalued or undervalued. Fundamental analysis aims to answer the question: “Is this stock a good investment based on its fundamentals?”

There are 3 stages to analyze a company’s fundamentals:

• Quantitative sector analysis: Involves filtering metrics which are forward looking indicators is the first and most important step.
• Company specific indicators: Involves analysing the company’s financial statements.
• Qualitative assessment: Analysis of the companies’ key performance indicators

Qualitative Sector Analysis

Price/Earnings Ratio

The single most observed valuation ratio of a company’s valuation vs its peers is p/e ratio. The 1-year forward p/e is the most common measure of P/E. For example in November 2023 the 1 year forward earnings number used would be the mean number from analysts for 2024.

Price / earnings = how much is world prepared to pay for company’s earnings? & How much is the world prepared to sell that company’s earnings for?

Learn more on how to use Price earnings ratio in your fundamental analysis.

Earnings Growth

Ideal Positive earnings growth profile

To identify a long trade idea, a trader needs to identify earnings growth momentum. More specifically, he needs to see the following;

• Stock positive earnings growth above the sector’s earnings growth average
• Faster earnings growth between current year (EG1) and project next year (EG2)

Learn more on how to use earnings growth in your fundamental analysis.

PEG Ratio

The PEG ratio, short for Price/Earnings to Growth ratio, is a financial metric used to assess the relative valuation of a company’s stock by taking into account both its price-to-earnings (P/E) ratio and its expected earnings growth rate.

Learn more on how to use earnings growth in your fundamental analysis.

Stocks Implied Volatility

Filter for the tradable stocks universe with approximately 1.5 times the S&P 500 Implied Volatility (VIX). This can be calculated using annualized historical volatility.

Learn more on how to use historical volatility in your fundamental analysis.

Market capitalization

Use market capitalization, to filter stocks to trade for Longs and Shorts. Learn more on how to use market capitalization in your fundamental analysis.

EBIT & EBITDA

EBIT and EBITDA are financial metrics used to analyze the profitability and operating performance of a company. They are commonly used in financial analysis and valuation to assess a company’s ability to generate earnings from its core operations.

Learn more on how to use EBITDA and EBIT in your fundamental analysis.

Enterprise value

Enterprise Value (EV) is a financial metric used to assess the total value of a company, taking into account both its equity and debt components.

Learn more on how to use Enterprise value in fundamental analysis.

Debt to equity ratio

The debt-to-equity ratio is a financial metric that indicates the proportion of a company’s financing that comes from debt compared to the financing that comes from equity. It is commonly used to assess a company’s financial leverage or risk profile.

Learn more on how to use debt to equity ratio in fundamental analysis.

Interest coverage ratio

The interest coverage ratio, also known as the times interest earned ratio, is a financial metric used to assess a company’s ability to meet its interest payment obligations on its debt. It indicates how well a company’s operating income can cover its interest expenses. In other words, it measures the company’s capacity to make interest payments from its earnings before interest and taxes (EBIT).

Learn more on how to use interest coverage ratio in fundamental analysis.

Current ratio

The current ratio is a financial metric used to assess a company’s short-term liquidity and ability to cover its short-term obligations using its short-term assets.

Learn more on how to use current ratio in fundamental analysis.

Quick Ratio

The quick ratio, also known as the acid-test ratio, is a financial metric used to evaluate a company’s short-term liquidity and its ability to cover immediate financial obligations.

Learn more on how to use quick ratio in fundamental analysis.