Fundamental Analysis

What is Fundamental Analysis? — Definition

Fundamental analysis is the bedrock of long-term investing. It involves analyzing a company's income statement, balance sheet, and cash flow statement to understand its true financial health, and then comparing that to its market price. The goal is to determine whether a stock is undervalued, fairly valued, or overvalued.

Key metrics in fundamental analysis include revenue growth, net income margins, EPS trends, return on equity (ROE), debt-to-equity ratio, free cash flow generation, and valuation ratios like P/E, EV/EBITDA, and Price-to-Sales. Beyond numbers, fundamental analysts also evaluate competitive moats, management quality, industry dynamics, and regulatory environment.

Example

In 2016, many fundamental analysts identified Facebook (now Meta) as cheap at 20x earnings given its 40%+ revenue growth, dominant position in social advertising, and early-stage Instagram monetization. By 2021, the stock had gained over 400% — driven by exactly the business fundamentals they'd identified.

All research published in BMInsider's 100X Insider Reports is built on deep fundamental analysis, combining quantitative screens with qualitative business assessment.