What is Fundamental Analysis?
Evaluating a stock based on a company's financial statements and business prospects.
Formal Definition
Fundamental analysis examines earnings, revenue growth, margins, the balance sheet, cash flow, competitive position, and management quality to estimate intrinsic value. It contrasts with technical analysis, which studies price and volume patterns. Fundamental conclusions drive value, quality, and growth investing styles.
In Simple Terms
It means judging a stock by studying the actual business behind it, its profits, debts, and growth, the way you would inspect a house before buying. The question is whether the company is healthy and fairly priced.
Example
Concluding that a stock is undervalued because its free cash flow yield exceeds the 10-year Treasury by 4% is a fundamental judgment.