LAP: QS-042LAP: QS-042

ObjectivesObjectives

Describe fundamental analysis.Describe fundamental analysis.

Discuss measures used in fundamental Discuss measures used in fundamental analysis.analysis.

Describe fundamental analysis.Describe fundamental analysis.

ObjectiveObjective

The Benefits of Stock InvestingThe Benefits of Stock Investing

1.1. The possibility of The possibility of high returnshigh returns

2.2. Learning about Learning about companies and the companies and the people and products people and products behind thembehind them

What is the bestWhat is the bestway to value a stock?way to value a stock?

• Market valueMarket value

$22.57

per share

• Book valueBook value

• Looks at all aspects of the company itself

• Not simply market value

• Not just book value

• But intrinsic, or fair, value

• Many approaches

Fundamental Analysis

$3 billion$3 billion1.791.79

55¢55¢

2,8792,879

17/2417/24

Qualitative factorsQualitative factors

Fundamental AnalysisFundamental Analysis

Qualitative factorsQualitative factors

2,8792,879

17/2417/241.791.7955¢55¢

$3 billion$3 billion

Quantitative factorsQuantitative factors

+ Quantitative factors+ Quantitative factors

Estimate of valueEstimate of value

Is the company’s stock overvalued Is the company’s stock overvalued or undervalued?or undervalued?

$2.55 per $2.55 per shareshare

Discuss measures used in Discuss measures used in fundamental analysis.fundamental analysis.

ObjectiveObjective

No single measure is the No single measure is the only measure to watch.only measure to watch.

Put measures in contextPut measures in context

It’s All RelativeIt’s All Relative

• As part of the overall As part of the overall picturepicture

• To make comparisons to To make comparisons to past performancepast performance

• To make comparisons to To make comparisons to similar companiessimilar companies

Know the companyKnow the company

Qualitative FactorsQualitative Factors

• How it makes money How it makes money (business model)(business model)

• Product or serviceProduct or service

• ManagementManagement

• Strength of brandStrength of brand

• Characteristics of the Characteristics of the sector and industrysector and industry

• Level of competitionLevel of competition

• Barriers to entryBarriers to entry

Qualitative FactorsQualitative Factors (cont’d) (cont’d)

Size up the competitionSize up the competition

SalesSales

Quantitative FactorsQuantitative Factors

Sales EPS

Earnings per shareEarnings per share

• How many goods/servicesHow many goods/servicesare being sold?are being sold?

• Look for growthLook for growth

• What are profits on a per share What are profits on a per share basis?basis?

• Net earnings / # of outstanding Net earnings / # of outstanding shares of common stockshares of common stock

ProfitabilityProfitability

Quantitative FactorsQuantitative Factors(cont’d)(cont’d)

Return on equity (ROE)Return on equity (ROE)

• How much of a company’s How much of a company’s sales is profit?sales is profit?

• Profit / salesProfit / sales

• How well is your How well is your investment being used?investment being used?

• Net earnings / book valueNet earnings / book value

Price-earnings (PE)Price-earnings (PE)

Quantitative FactorsQuantitative Factors(cont’d)(cont’d)

Price-earnings and growth (PEG)Price-earnings and growth (PEG)

• How much are investors How much are investors willing to pay for earnings?willing to pay for earnings?

• Stock price / EPSStock price / EPS

• How well are investor How well are investor expectations reflected in expectations reflected in growth?growth?

• PE / annual EPS growthPE / annual EPS growth

How have you responded to:How have you responded to:

Trend SpottingTrend Spotting

$• Rising fuel costsRising fuel costs

What industries are affected What industries are affected by these trends?by these trends?

• Changes in entertainment Changes in entertainment technologytechnology

• Internet shoppingInternet shopping

Quick CaseQuick Case

MarkED

Acknowledgments

Original DevelopersChristopher C. Burke

and Jane Wright, MarkED

Version 1.0

Copyright © 2007MarkED Resource Center

Copyright:

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