Fundamental analysis: A key point of your investment framework

If you're looking for a way to understand whether assets are actually worth their price, then you've come to the right place. Fundamental analysis is one of the two main approaches that traders use – the other is technical analysis. Although these two are different, their combination can provide a true picture.

What makes fundamental analysis so different?

Fundamental analysis essentially aims to determine the “intrinsic value” of a company or asset. This means looking into accounting numbers, management capabilities, market position, and the broader economic context. Is the company actually generating revenue? How does it compare to its competitors? Is there demand for their product?

In practice, you will either start from the top down with the major economic trends first, then details, or from the bottom up with the investigation of a specific company, and then looking at the broader picture. Both are valid – it all depends on how you think.

Fundamental analysis vs technical analysis: Which one to choose?

In fact, this is not a “either-or” question. Fundamental analysts believe that the current price is telling a false story – the true value of the stock is hidden somewhere behind other numbers. Technical analysts have a different view: they say that historical price data and trading volume reveal the future. They don’t care about the internal extremes – they want to see charts and patterns.

Traditionally, the “big boys” of Wall Street have noted that technical analysis cannot get ahead of the market tests ( this is called the efficient market hypothesis ). Others argue against it. The reality is that many successful traders use both, just to get a more complete picture.

Key Indicators of Fundamental Analysis: How to Decode Numbers

Here are the indicators you should be aware of:

( Earnings per share )EPS( – It all starts here

Earnings per share (EPS) is calculated by dividing net profit by the number of shares outstanding. Simple, yet important. For example, if a company's profit is 1 million dollars and it has 200,000 shares, then the EPS is 5 dollars. A higher EPS usually means that investors are more interested.

Even better: see the diluted EPS that takes into account stock options and other “hidden” factors that might slightly encourage investors.

) P/E ratio – Are you overpaying?

Take the stock price and divide it by the EPS. In other words: how much are you willing to pay for one dollar of earnings per share? If the number is high, investors see future potential. If the number is low, the asset may be undervalued.

But don't attach too much importance to it – it's just one part of the puzzle.

The relationship between market and accounting value (P/B) – Book value test

Divide the market price of the share by its accounting value ### assets minus liabilities ###. If this number is high, the market expects significant growth. If it is low, there may be a value pit. However, it works better with sensitive asset firms – the service sector tends to lag in this regard.

( PEG ratio – P/E with growth calculation

P/E ratio divided by the expected growth rate. Why is this important? Because a lower P/E of a rapidly growing company is not so expensive. If the PEG is below 1, it may be undervalued. Above 1 – likely overvalued.

Fundamental Analysis in the Crypto World: How FA Works Differently

Traditional FA is great for stocks, but for crypto? There is no EPS or intrinsic value. So, how do you evaluate Bitcoin or some altcoin token?

) NVT ratio – Crypto-FA tool

The network value divided by the daily transaction volume. This is the crypto P/E equivalent. Two coins with the same market capitalization, but one trades better? The one with the higher NVT may be overvalued, the lower one – undervalued.

( Network Activity: Active Addresses

How many people actually use this network? Active addresses give the signs, although the numbers can be played with. It is still a useful additional spot in the basket.

) Mining and Price – Miner Perspective

Miner cost ratio construction: miner price divided by mining cost. If this is below 1, miners operate at a loss – no matter how long they can hold out. Above 1, and their business is solid. Over time, this number should gravitate towards 1 as market conditions gain importance.

White paper, team, timeline – Essentially research work

Does the project white paper make sense? Do the team members have a history? Can they stick to the timeline? Research is still the best tool. No searching for sweet numbers – just work.

Strengths and weaknesses of fundamental analysis

Why love FA:

Fundamental analysis gives you the opportunity to see what technical analysis simply cannot – the true health of organizations. Most people can do this, training is available, data is accessible. The best investors – Buffett, Graham, and others – have shown that when done correctly, the results are exceptionally good.

But here is the constant:

Making a good FA is very difficult. Calculating the real value requires tons of work – it's not just throwing numbers into a formula. It also takes longer – it's not meant for short-term trading. And what happens when the market simply disagrees with your calculations? Keynes put it better: “The market can remain irrational longer than you can remain solvent.”

This is even more complicated for crypto markets. The data is not as predictable, everything is interconnected - FA is not such a powerful weapon.

How to combine fundamental and technical analysis

Meaningful strategy? Use both. Fundamental analysis tells you what to buy, technical tells you when to buy. Risk management must be completely separate – so that even if you are aware of the risks, you know how to act when things go wrong.

Do you want to try cryptocurrency? Start with research, then do fundamental analysis and technical analysis. Share risks, invest wisely. This is the secret to success.