Fundamental analysis in the stock market is a method of evaluating a company and determining the intrinsic value of its stock. To learn more about this analysis, stay with us in Forvest's Blog.
What is fundamental analysis?
Technical analysis and fundamental analysis are the two main schools of thought in financial market analysis. "Fundamental analysis" answers one of your most important questions, whether the company is suitable for investment or not? With the help of fundamental analysis, investors can check the status of a company and calculate the real value of its shares or stocks. Then, by examining the real value and current price of the company's shares, a decision is made to buy or sell it. By learning crypto fundamental analysis along with other methods, you can make better decisions and increase your chances of success. Definitely, investing in a company that you have full information about has a higher probability of success compared to a case where you don't know the company. Fundamental analysis is the method that can be used to achieve this information. In fact, in the fundamental analysis of a company, several factors such as financial status and profitability of the company, manufactured products, competitors, the company's market growth prospects in the future, the strength of the company's brand, management team, company suppliers etc. are checked and then a decision is made regarding the investment in that company's shares.
Different types of fundamental analysis
Fundamental analysis includes quantitative and qualitative analysis of a company and there are two different approaches to fundamental analysis in crypto: a top-down approach and another is a bottom-up approach.
Quantitative analysis
An analysis based on only numbers and considers the financial statements of the company and derives stock prices from observations that include analyzing numbers, ratios, and values to understand stock prices and the company's overall financial health.
Qualitative analysis
A study that includes brand value, management decisions, financial performance of the company in a certain period and other similar factors. For example, consumer behavior, demand and recognition of the company in wider markets and its goal is to discover answers to questions such as how it is perceived and management decisions that cause noise in the market.
Top-down approach
The top-down approach is actually reaching from the whole to the parts. In this approach, macroeconomics is studied first. In the next step, it is time to analyze the industries. At this stage, determine the appropriate industry for investment. At the end, among the companies in the selected industry, different companies are studied and the best company is analyzed and selected in terms of efficiency and investment.
Bottom-up approach
The bottom-up approach is exactly the opposite of the top-down approach. In this way, the company is studied first, then the industry and macroeconomics are studied.
Some advantages and disadvantages of crypto fundamental analysis
Carrying out detailed crypto fundamental analysis requires an investment of your effort and time. So is it worthwhile? To help you decide, let's consider some of the advantages and disadvantages of this type of analysis.
Advantages
- It can be said that fundamental analysis is suitable for long-term investments. The ability to identify and predict the long-term economic trend of a company does not make sense in short-term investments.
- Investing based on fundamental analysis in crypto can help companies with valuable assets, strong balance sheets, stable income, etc.
- Another benefit of fundamental analysis is enhancing investors’ thorough understanding of the business process. After thorough fundamental analysis, an investor will get to know the main drivers of a company’s earnings and profits. This good understanding can help investors avoid investing in companies that are prone to losses.
Disadvantages
- The main disadvantage of fundamental analysis is that it is time-consuming and more specialized.
- Fundamental analysis can overlook smaller companies and make analysts focus only on larger companies.
- Another point that fundamental analysis has is that it does not give any specific information about the right time to enter stocks. Accordingly, other methods of analysis such as technical analysis and table reading should also be used.
Conclusion
Although technical analysts believe that the best way to study the market is to follow the trend, fundamental analysts believe that the market places a lot of importance on the stock value. There are many examples of successful investors who have used crypto fundamental analysis in crypto or technical analysis for trading, there are even a group of them that use both types of this analysis.
