Stock Market Analysis


 Stock analysis is the process to identify stocks that can achieve high profits at low risk by means of scrutinizing a company’s fundamentals and also determine market trends. Stock markets go through bull and bear phases i.e. share prices are moving up or down. This kind of analysis will help investors choose the right kind of stocks altogether. There are two major types of stock analysis namely fundamental analysis and technical analysis.

Fundamental Analysis

Fundamental stock analysis is used to determine the movement of the share prices in the longer term. It involves a detailed evaluation of company’s macro and micro parameters overall. This analysis includes analyzing the company’s financial status, management, market and competitive advantage. It’s also normally done to determine the intrinsic value of a company’s stock. The purpose of calculating the intrinsic value is to: if a company’s stock value is above the intrinsic value, then its stock is overvalued and vice versa. Fundamental analysis will include the following quantitative parameters to determine the overall financial heath of a company:

  • Revenues
  • Earnings
  • Assets
  • Liabilities
  • Return on Investments(ROI)
  • Return on Equity(ROE)
  • Return on Assets (ROA)
  • Debt Ratio
  • Capitalization
  • Dividend Payout Ratio
  • Price to Earnings(P/E) ratio and
  • Book value

Fundamental analysis is always better for long-term and institutional investors who understands finance and also has a long –term investment plan. Every investor should understand company’s fundamentals overall before investing in its stock in order to fetch profits in the long-term investment horizon.Thus,fundamental analysis will focus only on company’s fundamentals rather than company’s share price which seems to be always volatile in nature.

Technical Analysis

Technical analysis is the process of analyzing the historical share price movements that can be used to determine market trends. This in turn can be used to make future predictions of the company’s stock performance.  The different kind of charts are used in technical analysis to showcase various variables such as trade volume, oscillators, moving average, short and long-term trend, line and bar charts. There are three types of technical analysis namely:

  • Primary trend- This comprises of overall up and downward trend from one to several years.
  • Secondary trend – This generally lasts from three weeks to three months in case the primary trend is downward.
  • Minor trend – This represents daily fluctuations and lasts for atleast a week

Technical analysis is always better for amateur investors and also has a short-term investment horizon.  But stock market analysts prefer fundamental analysis rather than technical analysis. Sometimes, the analysts use a hybrid approach i.e. the combination of both fundamental and technical analysis to determine the stock prices of a company.