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Posted 20 June 2023

Stock Valuation for Beginners

If you think fundamental and technical analyses sound more like a mathematical equation than something to help guide your investing practice, you’re not alone. With endless guides of investing terms and practices, it can be easy to get overwhelmed or confused. Keep reading to learn more about these common stock valuation methods.

Stock valuation methods can be broadly categorized into two groups: fundamental analysis and technical analysis. You can use one or both of these methods to inform your stock purchase or sale decisions, depending on your situation and investing strategy.

What is fundamental analysis?

According to Investopedia, “Fundamental analysis (FA) measures a security's intrinsic value by examining related economic and financial factors.” It can determine a stock’s real value – also known as “fair market value.” This is based on a variety of macro and microeconomic factors that can impact the value of a stock, making it a stronger indicator of long-term future trends. The goal of this more in depth analysis is to determine if the stock in question is being overvalued or undervalued in order to make the best purchase decision.

What is technical analysis?

On the other hand, technical analysis, “is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume.” This focuses primarily on past market data which can be a good indicator of future trends, however it does not consider external factors to the extent that the fundamental analysis does, making it a stronger indicator of short-term future trends.

How can they help me invest?

These metrics can give you a better idea of how the company is projected to perform in the short as well as long term. This is helpful when determining whether to buy, sell, or hold a stock. Many will rely on professionals to make these decisions, but like anything in life, the more you know, the more you’re able to have control over your own finances and future.


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