Chapter: 5 Investing in Stocks

Section: 10 Fundamental Analysis

Fundamental analysis attempts to analyze and ascertain the true value of a stock by examining the basic factors that influence the price of a share such as earnings, growth, cash flows, operating efficiency, book value, stock price volatility, management, industry factors, macroeconomic scenario etc.


In the fundamental analysis approach, the investment decision is taken based on whether the stock is undervalued, overvalued or accurately valued compared to the market price of the stock. If a stock is undervalued, it should be acquired to make capital gains in the future. On the other hand, if a stock is overvalued, immediate disposal or short sale is advisable.