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A method of evaluating a security by analyzing the financial and economic factors that influence its intrinsic value.
Fundamental analysts examine a company's financial statements, competitive position, industry trends, management quality, and macroeconomic conditions to determine whether a stock is overvalued or undervalued. Key metrics include P/E ratio, EPS growth, return on equity, debt levels, and free cash flow. The approach was pioneered by Benjamin Graham and David Dodd in their 1934 book "Security Analysis" and later popularized by Warren Buffett. Fundamental analysis contrasts with technical analysis, which focuses on price patterns and trading volume rather than business fundamentals.