Fundamental Analysis?

Question

I have just read over a companies financials (only about my fifth) and its the first one that looks like its good along with some of the numbers I have crunched. How do I take the numbers to see what a stock is actually worth to see if its actually undervalued?

Answer 1

That is a very good question!! I quite frankly do not know the answer. I can provide you some things to look for.

1. Check the amount of bebt on the books. Is it less than 1 to 3 debt to equity?
2. Check the tangible book value--less intagibles. Is in more than 1/3 of the market price preferrably close to 1/2.
3. Check the 5 years earnings and sales history. Are they increasing about better than 8% annually over the 5 years. There may be a drop occassionally but they should be increasing.
4. Is there a dividend? Is it greater than 2%. Is it increasing?
5. Are the executives stealing the assets from the company with over compensation? Are the executives making more than the shareholders? You might be surprised in how many are.
6. Is the company a large cap company? If it is, it might be over-valued. People tend to focus on large cap companies, me included.
7. Is the company a tech company? If it is it is probably overvalued. Tech companies come and go every day.

Answer 2

Bob was correct, being undervalued is a matter of opinion not fact. When looking at a stocks financials, I like to look at a few things to see if I think the stock is undervalued. First I do an analysis of the financials over a period of time, usually three years and then break them down by quarter. If you use Excel properly all you have to do is set up a template and it should generate everything for you. The numbers and ratio's should be getting better overtime.
I then like to see what the P/E ratio has been overtime to see how others have valued the stock in the past compared to earnings.
After this compare the company's financials to their industry competitors.
If everything looks good, buy the stock.

Answer 3

to see if a stock is under valued it is just easier to see if the company has a low p/e ratio compared to the industry. Also what a stock is actually worth is known as it's book value many sites probably will post a stock book value I know td ameritrade does they also post many of the fundamentals also. When looking at fundamentals I would be more worried with sales are they steadily increasing and things like this.

Undervalued stocks are those which usually sell for less than it's book value and seem to be less speculative investments than those trading above book value and at high p/e ratios. These stocks are usually safer because they are not pricing in speculating on the future like many other stocks so when markets are bad these stocks don't seem to take the beating the speculative overpriced stocks do because there price is supported by more than speculation.

In my opinion value stocks are better than speculative stocks they both overall seem to produce the same results in the long run neither really outperform the other, but value stocks have reduced risk

Answer 4

In my most simplest terms:
"undervalue" means that a stock is trading below its true value. The difficulty here is understanding what the TRUE value really is.
The P/B ratio is the easiest way to determine a company's value, but like they say "its not magic"
PB ratio= market price/book value
if that ratio is below 1 than it is undervalued. But you have to look at so many other things, like what is going on in this company if it is "cheap". What is the industries standard.

But atleast you have the formula to determine if it is "undervalued" and you can go from there. My favorite areas when looking at a balance sheet are Free cash flow, PE ratios and the PB...you can start there.

But remember-always look at the industry standards when comparing, because these numbers are alot different with each industry.
Good luck.

http://www.investopedia.com/articles/fundamental/03/112603.asp

Answer 5

"Undervalued" is not a fact; its an opinion. The current price is where it is because the investors with money consider it overvalued at a higher price and won't pay it, while investors with the stock consider it undervalued at a lower price and won't sell it.

Answer 6

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