Question

Describe the basis of fundamental analysis to someone who is interested and who is entering the world of finance for the first time.

Answer 1

Fundamental analysis is the analysis used by investors when trying to pick undervalued
or overvalued securities.
Fundamental analysis involves analyzing the economy and future earnings of a company. In addition, fundamental analysis
involves comparing similar securities in an industry to identify if any of the securities
is not correctly priced in the market.
When looking at a stock for example, analysts can compare the P/E (price per share/earnings per
share) to evaluate whether the stock is overvalued or undervalued. Analysts also use
other metrics such as free cash flow/ Earnings per share to compare stocks that are from the
same industry.