The first principle of fundamental analysis is that a company's financial health largely determines its intrinsic value 🏦
As a reminder, intrinsic value = a company’s true, inherit value regardless of hype or current price 💡
Financial health is impacted a variety of internal factors, including revenue, earnings, assets, and liabilities 📊
External factors, such as interest rates, inflation, and geopolitical risks also play a role 🌎
This is why fundamental analysis looks at so many things to understand intrinsic value 🧠
But, intrinsic value is only the first step and principle.
Intrinsic value leads to our second principle: valuation 👀
More specifically, whether or not something is OVERvalued or UNDERvalued ⚖️
You can determine overvaluation or undervaluation by comparing the intrinsic value to the current value or stock price ✍️
If intrinsic value is greater than current value, then the stock is overvalued 🤑
The stock is probably not a good investment 😥
If intrinsic value is less than current value, then the stock is undervalued 🥳
So, the stock may be a great investment!
The last principle of fundamental analysis is 🥁risk 🥁
Risk plays a huge role in investing
Because intrinsic value is only an estimate, an investor’s comfort with risk determines how willing they are to believe in and invest based on valuation estimates 🤔
Now you know the three principles of fundamental analysis: intrinsic value, valuation and risk 3️⃣
