Fundamental Analysis determines intrinsic stock prices by projecting future earnings and then applying an acceptable return on investment to calculate the stock price. This approach is used by most traditional investment analysts and is the basis of their stock performance recommendations. In a stable economic and business environment applying Fundamental Analysis should provide a solid pricing mechanism however all businesses operate in dynamic environments and future earnings are never guaranteed. This results in varying estimates of earnings. Dynamic business environments result in less reliable earnings estimates and a greater possible range of future earnings. The rate of return component of Fundamental Analysis is also variable and is influenced by the the return from alternative investments and the perceived risk of the stock investment. As risk increases the required rate of return increases to compensate for the risk.
Fundamental Analysis essentially tells us what price a stock should be. This can be considered as its intrinsic or Fair Value based on it future earnings and return on investment. However the actual price of a stock is determined by the stock market and the stock market is driven by human emotion. So what we really want to know is what price a stock will be on the stock market within a future time window. Analyzing past stock prices can provide some insight into future movements, this is the realm of Technical Analysis
Technical Analysis or Charting applies statistical techniques to historical stock prices and volumes to identify likely future stock price movements. It does not consider the fundamentals of the stock, the business, or economic environment as the influence of these factors is deemed to be already reflected in the stock price. Because Technical Analysis is based on actual past stock price data (which was influenced by human emotion) it incorporates a component of human emotion in its calculations. This can provide valuable indicators and insight into future stock price movements that can not be identified using Fundamental Analysis.
At any point in time actual stock prices consist of two components. The Fair Value price (fundamental) and a variance from the Fair Value due to dynamic environments and human emotion. The more volatile the environment and emotion the greater the variance. This results in cyclic boom (bull) and bust (bear) markets. Achieving the best possible return for our investment requires both an appreciation of the fundamental Fair Value of a stock and the future variance indicated by technical analysis.
To help us do this there is an extensive range of stock pricing software and "stock experts" available. All we need do is buy their software or subscribe to their research newsletters, and follow their recommendations. The problem with using an expert or a system developed by an expert is how can we judge their expertise. Perhaps the best way is to gain as much knowledge as possible ourselves so we have the ability to make informed decisions.
How do we do gain knowledge? We read, listen and think. The internet provides easy access to a wide range of market and stock information, most of it free, and if it is not free it is usually provided with free trial period. So sign up for free newsletters, accept trail offers, and use sites like StockPriceAnalysis.com to increase your knowledge so you can make informed decisions.
StockPriceAnalysis.com has no stock experts we simply provide some basic tools and information to assist investors determine when and at what price a stock might provide the best investment return. We do not provide financial advice or expert opinion, just information and tools that may assist stock investment decisions. The goal is to provide investors with increased knowledge of stock market dynamics and access to the wealth of stock market information available on the Internet.
To achieve this we have developed a free web based Stock Price Analysis Module incorporating Fundamental Analysis to calculate:
- a Fair Value stock price;
- the comparative Value offered by a stock;
- a profit Target sell price
- a Stop Loss sell price;
- Price Earnings Ratios (PE) for Fair Value and Buy prices;
- stock Return on Investment;
This site also includes additional information on Fundamental Analysis, Technical Analysis, Market Forecasting, Trading Strategies, and a Current Market forecast. All information and tools including our Stock Price Analysis Module and Trading to a Plan guide can be freely accessed from the menu links at the top left of this page. The Stock Price Analysis Logo returns to this page.