Fundamental Analysis: Intrinsic Value and other Basics


We can say that fundamental analysis is the polar opposite of technical analysis. Where technical analysts use indicators and technical charts, fundamental analysts use micro- and macro-economic factors.

fundamental analysis written on paper

Fundamental analysts typically find a stock’s intrinsic value. They also use different quantitative and qualitative factors. Most of the time, fundamental analysis applies to the stock market, but you can also use it for other securities such as currencies, derivatives, or bonds.

Let’s break fundamental analysis and see if this one’s the best investing approach fit for you.

The Questions You Need to Ask

For stocks, fundamental analysis’ goal is to find the securities’ value. Fundamental analysts do this by studying the underlying factors that can affect a company’s actual business and its long-term prospects.

In addition, you can do fundamental analysis on industries and different economies as a whole. The following are the questions that you need to ask if you want to perform a thorough fundamental analysis.

1.       Is the revenue growing?
2.       Is it earning profits?
3.       Can it beat its competitors in the future?
4.       Is the management cooking the books?
5.       Can it pay back its debts?

These are very important questions to answer. However, these are just primers, and there plenty other questions that you can ask. The main question that you are trying to answer here is: is this company’s stock a worthy investment?

What is “Intrinsic Value”?

When we say intrinsic value, we refer to the actual value of an asset. When doing this, you have to consider many underlying factors, aspects of business, and the overall perception of that stock’s value.

You have to remember that an asset’s intrinsic value may or may not be the same with its current market value. In addition, the intrinsic value is used generally in options pricing, indicating the amount of the option in the money.

In effect, finding the intrinsic value of an asset is the ultimate goal of fundamental analysis. This is because one day, one way or another, the market will reflect that asset’s intrinsic value. When you figure out the asset’s intrinsic value, you give yourself many opportunities.

You can try to hunt for assets that are undervalued, or those that have current market prices that are lower than their intrinsic or actual value. Once you find one, you can bet on it and go long. If your assessment is accurate, you earn profits. You can go short if you think the assets' current market price is higher than its intrinsic value.

However, the main problem with fundamental analysis is that you are faced with a couple of giant questions that cannot be definitively and conclusively answered. First, you can’t be so sure if your determined intrinsic value is correct. And then, you cannot know how much time it will take for the markets to reflect that intrinsic value.

Quantitative and Quantitative Factors

When talking about fundamental analysis, quantitative factors refer to those that are capable of being measured or expressed in numbers. On the other hand, qualitative factors refer to the quality or characteristics of a business or an asset.

Both qualitative and quantitative factors are important for a fundamental analyst. The important thing to remember is that you should use these two in conjunction with each other since both contribute to the final assessment of an asset’s overall intrinsic value.


There’s a lot more to learn about fundamental analysis. However, the most important thing to remember is that fundamental analysis is a big must in the world of investing, even if other investors ditch it for technical analysis. In fact, both kinds of analyses are helpful for investors who want to outperform the market. 

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