Identifying fundamentally strong task is always a tedious task. Here we are providing answer to question What is fundamental analysis for beginners?
To identify fundamentals of stock in very high level .This is one of the simplest way to identify a good stock which is performing well or not and also whether it will perform good in future. Once you know the fundamentals, your confidence in the stock increases and you can hold on to it for longer run.To do this we use screener website. It provides very good details about company and its financial reports.
No Worries, we will let you know what minimal things to check under financial reports.
What is fundamental analysis for beginners?
Lets Begin and will keep pointers sharp to the point,
* Login to Screener by providing your details( its free).
* Search for company. Once company details loaded , Start reading about company details and get gist of what sector company belongs to and what they do.
Step 1-Long term chart
Long term chart shows how good or bad stock has performed for past 5 or 10 years.
Click on the long term chart of 5 to 10 years and chart should be in 45 degree inclination. It has to start from bottom and has to be moving forward on up word direction. Any other direction chart we should be ignoring.
Slight deviation in short term can be included, but under longer time frame it should be increasing upwards.
This shows that company is compounding year by year.
Step 2-Quarterly profit and Yearly profit
Profit’s are the entity which shows way to go for every individual stock.
This should be same or increasing comparatively . Ex: consider a company whose previous quarter profit was 100cr and this quarter profit is either 100 or more than 100, then we can say its consistent.
But if its less than <10 % then we need more study. Some time due to cyclic Nature, means some stock will run only on some quarter due to its business increment due to festival season and others.
so that time we may be seeing increase or decrease in profit. Ideally we can say profit should be ascending order , if not all quarters but most of them.
Yearly profit
Even though quarterly profit is less, if yearly profit is same or more than that of previous year we can identify that as good stock.
It suggests company is doing overall good and its good for fundamentally strong stock identification. Process remains same. identify ascending order of net profit.
Note: Some times we can see that initially company was doing good and in between did not do well and then its again started to do well now.
So this is indication that company is not stable, or something is going on with the company. what bad they were doing and what good now they are doing has be identified.
This we can try to identify by going through company con calls , liability details, project details etc. This is deep study which is very good if we do for every client.
This is achieved using Stock Edge site which provides you enormous amount of data to study 
Step 3-Shareholding Pattern
This is all about checking how much of interest people has in particular stock.
There are mainly 3. Promoter holding, FII , DII holdings .
Promoters are the one who is responsible for company growth. when we see their stake decreasing we need to be careful on reasons of it. FII are foreign institution Investors who are from other countries and investing in our country.
DII are Domestic institutional investors who are from our country and others who are retailers like us.( General people)
here, check if FII stake is increased quarterly wise. this shows us how they are thinking. Since we are retailers we wont be knowing inside details, but this data gives you information on whether anything good going to happen if FII stake is increased and vice versa as well.
Same way DII data as well but not much deep. But FII stake is important for us. If its reduced , we need to take a step back and study.
Step 4-PE Ratio and Median PE Ratio.
We Know that this is difficult concepts to understand , do not worry, will let you know what is more important for us.
Ideally PE ratio if its more than 50 people identify this as not good as this is already in overbought zone. But this is not fully true as it depends on sector to sector.
If you see any company having all above pointers good and see PE is less than 50 then its green signal for us. Since we said its also depends on sector to sector, checking for all sector may be tedious task in short time, so we can check median PE by clicking on chart option “PE Ratio” in screen website chart. Go to screener page and hover on chart for current year and it will show the ratio.
Here it shows median PE of stock for 5/10 years( as we have to only check for 5 and 10 years Only). By checking this median PE, whenever stock reaches here and after checking all the above pointers we can do Fundamentally strong Stock identification. Its not that stocks who’s PE is more than 50 and other metrices are also matching is not strong, but its not good time to enter.
Step 5-Check Compound Sales, Profit and CAGR.
As part of Fundamentally strong Stock identification- 6 simple steps, this is the point where we need to check whether sales are increased by year wise.
Recent years it should increase when compared to other years. Otherwise its red flag for us. With respect to Compound profit and CAGR as well , we need to see minimum 20 percent for all previous years data. This shows as that stock is compounding or not with good percentage. If its less than 20 and other aspect are good, need to check deep data and confirm.
Step 6- When to enter and when to exit
This is where retail investors want to jump immediately. No hurry.
This depends upon how much confident we are on the company. For example , if we are not sure company will do good for long year and we cannot monitor the stock, then we may have to enter by looking at technical analysis, not fundamentally, this is called short term/swing trades.
By doing fundamental analysis we can enter any time after verifying above 6 steps and we can keep it for longer and also need to monitor quarterly wise by going through their result and con calls.
So for by doing fundamental analysis how to exit company? This also depends on our experience, like some people may exit when company becomes double : Ex A company of 100cr market cap becomes 200cr, then people exit, they are fine with profit.
Some still holds and check for upcoming con call details , and their financial, and also check how management is delivering what is promised etc. So we will get to learn all these jargons once we start to do above exercises consistently.
Conclusion:
By performing above exercises consistently you will be able to go through process of Fundamentally strong Stock identification. There are many other ways to perform the same.
But with our knowledge we identified above pointers will surely provide some knowledge on the same. What is fundamental analysis for beginners? is a small helping hand to people who are new in market and able to under stand and start with fundamentals .
If you are totally beginner to market, please go through our article to get introduced to market. Read More.
Note: We are not SEBI registered and please do your research before buying.
FAQ:
1) Which is the best website for fundamental analysis of stocks?
Best website is screener and stock edge. Other than this you can learn from books which are mentioned under our beginner article.
2)Which PE ratio is good?
Anything less than 50 is good. If all other fundamentals are good and PE is around 20, then its very good.
3)Which indicator is best for fundamental analysis?
Better than any price indicator. Please check for Profits, management principles and sector wise study will get you there. We can also refer to EPS, PE ratio.