Fundamental Analysis: Two Key Models for Stock Valuation

Fundamental Analysis is a method of evaluating the actual value of a particular stock by evaluating the company it represents. Determining if the stock is undervalued, or overvalued, can make a huge difference in how it will preform in the future. Both of the methods discussed here are important to give the investor a true picture of the potential investment. They should always be used together.

The Quantitative Method:

The quantitative method deals with how a company is doing on paper. It is a deep study of a company's strengths and weakness. It is based on the actual numbers and uses flow charts, profit and loss, etc to calculate the value of stock. The idea is to define clearly if a company is profitable and likely to stay that way. This process can take a bit of detective work as well, because companies tend to overvalue to look better for prospective investors.

The Qualitative Method:

This qualitative method involves those qualities of a company that are not easily put on a spread sheet. These factors might include things like name recognition, market share and competition, or how experienced the board of directors is. These are important factors to consider when establishing a company's true worth.