How fundamental analysis helps you understand the true value of assets

Content - Why fundamental analysis is crucial - Definition and approach - Difference between fundamental and technical analysis - Key indicators for traditional markets - Earnings per share (EPS) and its significance - Price/earnings ratio (P/E) - Book value and price/book value ratio (P/B) - PEG ratio as a tool for long-term investors - Adapting fundamental analysis to cryptocurrencies - Network value to transactions (NVT) - Blockchain activity metrics - Mining cost and profitability - Project research through white paper, team, and roadmap - Advantages and limitations of the approach - Final recommendations

Why Fundamental Analysis Matters

Those who enter the world of financial markets – whether related to traditional stocks or emerging digital assets – encounter numerous methods and approaches. Most of them can be divided into two main categories: an approach focused on intrinsic value (known as fundamental analysis), and a method based on price patterns (known as technical analysis). This material will first explore the aforementioned technique in depth.

What does it mean to conduct fundamental analysis

When analyzing a company or asset, specialists and individual investors strive to uncover the true economic value by examining a multitude of factors. The process involves gathering and assessing information from both internal ( financial indicators, management structure ), as well as external ( competition, economic conditions ) sources.

The goal is to determine whether a given asset is currently overvalued or undervalued relative to its market price. The conclusions drawn enable market participants to structure their investment decisions, increasing the chances of a profitable position.

For example, before engaging with a specific company, you should review its financial report – revenues, balance sheet, cash flows. After that, you can proceed to analyze the industry and competitive landscape. Which companies are in this sector? What is the target audience? Is the market expanding?

The process provides two main methodologies. With the bottom-up approach, you start with the company that interests you and gradually expand your perspective to the broader economy. With the top-down approach, on the contrary – you start with a general economic overview and then drill down to specific investment opportunities.

The final result of this analysis is a projected price, which is compared to the current market price. If the forecast is higher – the asset is potentially undervalued. If it is lower – it may indicate overvaluation.

Fundamental vs Technical Approach

For newcomers, this contrast is often confusing. The two methods rely on fundamentally different philosophies and data.

Proponents of the fundamental approach argue that the market price does not necessarily reflect the true value of assets. In contrast, technical analysts believe that future price movements can be predicted from historical price movements and volume data. They focus on charts, patterns, and trends without considering external factors.

According to the Efficient Market Hypothesis (EMH), consistently outperforming the market through technical analysis is impossible, as financial markets already reflect all available information. Some forms of the theory allow for the possibility that even fundamental analysis does not guarantee a competitive advantage.

In practice, many traders combine both approaches, using both technical analysis to determine entry/exit points and fundamental analysis for selecting assets with potential.

Key Indicators for Evaluating Traditional Assets

Earnings Per Share (EPS)

This indicator measures how much profit the company generates for each issued share. The formula is: