What is fundamental analysis in investing?

Fundamental analysis is a method used by investors to evaluate a stock’s intrinsic value by examining related economic, financial, and other qualitative and quantitative factors. This involves a thorough analysis of a company's financial statements, including its income statement, balance sheet, and cash flow statement. By analyzing these documents, investors can assess the company's profitability, revenue streams, expenses, and overall financial health.

In this context, fundamental analysis seeks to determine whether the stock is undervalued or overvalued based on its intrinsic worth. Investors who apply this technique typically focus on factors such as earnings growth, dividends, return on equity, and the company’s economic environment, allowing them to make informed decisions about buying, holding, or selling the stock.

The other approaches mentioned, such as market trends or technical analysis based on chart patterns, do not focus on the company’s financial health and intrinsic value in the same way. Instead, they may consider only external factors or stock price movements, which do not provide a comprehensive evaluation of a company's underlying performance.