VPS | Fundamental Stock Analysis Method

Fundamental analysis is a valuable method used to assess the value and potential of a company in the stock market. This method is performed by examining and evaluating factors and indicators that accurately reflect the business and production activities of the company. Based on this foundation, forecasts can be made about the company's future development prospects.

Fundamental analysis will explore and utilize aspects such as the company's financial situation, business operations, market conditions, competitive rivals, etc.

These factors are divided into two fundamental approaches: quantitative and qualitative.

What is qualitative analysis?

Qualitative analysis involves qualitative factors evaluated through the investor's perspective and is not measured by any specific unit.

Typical factors include industry growth expectations, business models, competitive advantages, risk management, vision, and commitment.

• Industry growth expectations include factors that create favourable conditions for the company's future development, such as government support policies or emerging trends in the industry. 
• Additionally, each company has its unique business model, so analyzing this factor helps investors understand the company's growth prospects and competitive advantages, thereby making investment decisions. 
• Competitive advantages can come from various factors, such as low production costs, brand influence, company size, negotiation skills, and leadership's investment calls. A reliable company will know how to leverage its advantages to expand its scale and achieve sustainable development. 
• Risks arising from macroeconomic or industry-specific factors will directly or indirectly affect the company in specific ways. Therefore, companies need reasonable risk management methods to withstand market fluctuations. 
• Companies need medium- and long-term visions appropriate to their capabilities and industry trends. Commitment to development with the company in general and shareholders, in particular, is also essential in evaluating the leadership's reliability.

What is quantitative analysis?

Quantitative analysis includes financial indicators mentioned in the company's financial reports. These factors include revenue and profit, assets and capital, cash flow, and market price indices.

• Increases in revenue and profit, as well as profitability ratios like ROA, ROE, ROIC, net profit margin, earnings per share (EPS), and dividends, should be considered. With appropriate percentages, investors can identify fundamentally sound stocks with stable profit-making potential.
• Assets and capital include capital structure, asset allocation, liquidity, debt ratio, cash reserves, and payment ratios. Based on the scale of capital and assets, investors can identify the core strength of the company they are interested in. Companies or conglomerates with significant capital can leverage this advantage to outperform competitors in the same industry by investing heavily and expanding business scale, production, and product development. This is considered one of the most stable ways to grow a company's stock price when gaining investor confidence.
• Moreover, essential factors in evaluating a company's financial performance include free cash flow, dividend policy, and capital expenditure (CAPEX). Analyzing cash flow helps investors understand the scope of the company's operations and investment plans, allowing them to choose companies' stocks with the most suitable business plans for their individual investment goals and strategies.
• Market price indices may include P/E (price-to-earnings ratio) and P/B (price-to-book ratio). These are two valuable tools for investors to identify stocks of companies with potential but are currently priced lower than their actual value. By using these indices, investors can make rational trading decisions to achieve significant profits by investing in stocks with high potential but still trading at low prices compared to their actual value.