Fundamental Analysis of Stocks And Stock Analysis Tips

Fundamental Analysis of Stocks And Stock Analysis Tips

You have seen many people making money in the stock market and now you too wish to try your luck. You have been watching daily market moments for a while and now you feel it is high time you participated. 

You have noticed that the price of the scrip of a known company has fallen drastically and you are tempted to invest in it. But wait, no stock should be bought without thorough analysis. In this case, since it is an investment you want to make, fundamental analysis of the stock should be done.

Or you may have noticed a lot of price movement in the stock of a particular company. Right now, it has fallen but you are sure it will rise again. You want to profit from these upward and downward movements. You need to technically analyze the stock to do this. This kind of analysis is also used for long term investing.

Fundamental Analysis of Stocks

This involves considering fundamentals for deciding whether a stock should be bought or sold. You need to consider the fundamentals of the company as well as the macro picture. 

How does one study the fundamentals of the company? – By analyzing the financial statement of the company. This is available on the company website. A company also publishes its results in prominent newspapers which you can refer.

Fundamental analysis may be done for the purpose of value investing, growth investing or income investing.

Value investing means that the investors know that a stock is worth much more than its current price. They calculate its true value and decide to buy the stock as they are sure that with the passage of time, the stock will reflect its actual value. 

Growth investing means that a person wants to buy shares of a company because he sees the growth potential of the company. In addition to this, the performance of the sector to which the company belongs, the condition of the country’s economy as well as international economic conditions may also be considered.

Income investors invest for the purpose of the income they can earn from their investments. They basically want to invest in sound companies which yield good dividend. They calculate the relevant ratios and make their investment decision.

Important Ratios Used For Fundamental Stock Analysis:

  • Price to Earnings Ratio (P/E)
  • Earnings per share (EPS)
  • Price to book ratio 
  • Dividend yield
  • Return on Equity (ROE)
  • Technical Analysis of Stocks


You may have seen technical analysts on television, talk about charts, graphs, highs, lows, support and resistance. For a newcomer all this may sound too complicated but what the analyst is actually doing is forecasting the price movements of scrip based on how it has moved in the past. Such analysts go according to trends and believe strongly that ‘history repeats itself’. They feel that fundamental analysis can be done by anybody. Technical analysis on the other hand requires some specialized knowledge.

Stock Technical Charts:

Line Charts:

This kind of chart shows a line connecting the closing prices of a stock over a period of time.

Bar Charts:  

These are usually available in the online trading software and indicate the opening and closing prices of scrip and the high and the low which it formed during the day or week.

Candlestick Charts:

The difference between these charts and the bar charts is that the bars or ‘candle sticks’ are filled and the high and the low of the scrip jut out of the candles. They form patterns like doji, shooting star etc.   Advance Decline Ratio, MACD (Moving Average Convergence/Divergence), RSI (Relative Strength Index), Stochastic Oscillator are some indicators which are used for Technical Analysis.   So whenever you want to buy a stock for investing or trading, first carefully analyze the stock and only then go ahead with the purchase.