For an investor aiming to succeed in the stock market, conducting a thorough analysis is a must. One of the most crucial analysis methods is fundamental analysis, a technique widely used by investors to select stocks with promising long-term prospects.
In fundamental analysis, investors evaluate stocks based on macro and microeconomic conditions, the relevant industry, and the company's financial reports. By leveraging this data and information, investors can make more informed investment decisions. Below are some essential steps in performing fundamental stock analysis.
Purpose and Methods of Fundamental Analysis
The first step in fundamental analysis is understanding its purpose. The primary goal is to determine whether a stock's current market price is overvalued or undervalued. Once this goal is clear, investors can begin gathering the necessary critical information.
There are two main methods in fundamental analysis: top-down and bottom-up. Both aim to achieve the same goal, but the analysis stages differ.
- Top-Down Method: This approach starts with a global economic analysis, followed by microeconomic conditions, industry conditions, and finally, the company's condition.
- Bottom-Up Method: This approach begins with a company analysis, then considers industry conditions, and lastly, micro and macroeconomic conditions.
Here are some factors investors should consider when using fundamental analysis:
- Macroeconomic Conditions: Investors should pay attention to global economic growth, including geopolitical conflicts that could impact the stock market. For example, Russia's invasion of Ukraine caused a spike in oil and gas prices and slowed global economic growth.
- Microeconomic Conditions: Factors such as interest rates, inflation rates, and domestic socio-political conditions should also be considered.
- Industry Sector Prospects: Investors need to assess how specific industry cycles and sectors are affected by macro and microeconomic conditions.
- Company Conditions: This is the most critical part of fundamental analysis. Investors must understand the company's business, products or services offered, financial health, and management quality.
Company Analysis and Data Sources
A company's fundamental factors can be categorized into two groups: qualitative and quantitative.
- Qualitative Factors: These include the company's competitive advantage over its peers and the management's competence in running the business effectively and honestly.
- Quantitative Factors: These include metrics such as Price to Book Value (PBV), Book Value (BV), Earnings Per Share (EPS), Price Earnings Ratio (PER), Debt Equity Ratio (DER), and Return on Equity (ROE).
Data for this analysis can be obtained from the company's annual and quarterly financial reports, as well as from public exposés typically held at least once a year.
Supporting Applications for Fundamental Analysis
To facilitate the analysis process, investors can utilize various applications and websites that provide the required data and information. Here are a few examples:
- RTI Business: This app helps investors quickly view an issuer's basic ratios, speeding up financial report analysis.
- Official Website of the Indonesia Stock Exchange (IDX): Provides information related to public exposés, annual reports, and company financial statements.
- Securities Applications: These apps are very useful for screening stocks based on predetermined criteria.
By conducting careful fundamental analysis, investors can make wiser investment decisions and avoid potential losses.
