ファンダメンタル分析の基礎：企業価値を見極める投資戦略Fundamentals of Fundamental Analysis: Unveiling Intrinsic Value for Informed Investment Decisions

Fundamentals of Fundamental Analysis: Unveiling Intrinsic Value for Informed Investment Decisions

In the world of investing, you're constantly faced with the question of which companies to invest in amidst daily stock price fluctuations. Fundamental analysis is a powerful tool that allows you to discern a company's true value, unaffected by market news or short-term trends, and make wise investment decisions from a long-term perspective. This article provides a comprehensive explanation of fundamental analysis, from its basics to its application, as well as its limitations and risks.

[Disclaimer]

• Analysis is a description of methods based on past data, not a prediction of future outcomes.
• The results of any analysis are for informational purposes only and should be used as a reference for investment decisions; they do not guarantee profits.

What is Fundamental Analysis?

Fundamental analysis is an analytical method that attempts to calculate a company's intrinsic value by evaluating its economic foundation, business content, industry environment, and macroeconomic conditions from multiple perspectives. If a stock price is undervalued relative to its intrinsic value, it suggests a "buy" signal; if overvalued, a "sell" signal.

This analysis primarily focuses on the following elements:

• Financial Health: Data from financial statements (Income Statement, Balance Sheet, Cash Flow Statement) indicating a company's profitability, solvency, and growth.
• Business Operations and Competitiveness: What business model a company employs and what competitive advantages it holds within its industry.
• Quality of Management: Management strategy, leadership, governance structure, etc.
• Economic and Industry Environment: External factors surrounding the company, such as interest rates, inflation, economic trends, regulations, and technological innovations.

Unlike technical analysis, which predicts short-term stock price movements, fundamental analysis focuses on a company's long-term growth and stability, making it generally considered an important method for long-term investors.

Why is Fundamental Analysis Necessary?

Fundamental analysis goes beyond mere stock price prediction; it's an indispensable process for investors to understand companies more deeply and make confident investment decisions.

1. Avoid Market Noise: It enables you to make investment decisions based on a company's "true strength," rather than being swayed by short-term market fluctuations or emotional trading.
2. Discover Undervalued/Overvalued Stocks: By evaluating a company's intrinsic value, it helps identify undervalued stocks that the market may be overlooking, or conversely, overvalued stocks.
3. Enhance Risk Management: Analyzing a company's financial health and business stability allows for early detection of potential risks such as bankruptcy or business downturns, aiding in the risk management of your investment portfolio.
4. Long-Term Wealth Building: By discerning a company's sustainable growth potential, you can invest long-term in stocks with the potential to grow your assets over time, benefiting from the power of compounding.

Key Indicators and Evaluation Methods in Fundamental Analysis

Fundamental analysis is conducted through two main aspects: quantitative analysis (based on numbers) and qualitative analysis (based on non-numeric factors).

1. Understanding Financial Statements

The following "three major financial statements" are crucial for understanding a company's health:

• Income Statement (P/L - Profit and Loss Statement): Shows a company's revenues, expenses, and profits over a specific period. It helps evaluate profitability through items like sales, cost of goods sold, selling, general & administrative expenses, operating income, ordinary income, and net income.
• Balance Sheet (B/S): Presents a company's assets, liabilities, and equity at a specific point in time. It is important for assessing a company's financial position, particularly its stability and solvency. Ratios like the equity ratio and current ratio are derived from it.
• Cash Flow Statement (C/F): Illustrates a company's cash inflows and outflows over a specific period. It provides insight into a company's cash-generating ability and cash usage from three perspectives: operating, investing, and financing activities.

2. Key Investment Ratios

These are representative ratios calculated from financial statement data that are useful for investment decisions.

• PER (Price Earnings Ratio): Indicates how many times the stock price is relative to its earnings per share (EPS). It serves as a benchmark for determining whether a stock is undervalued or overvalued in relation to a company's earning power. Generally, a lower PER suggests undervaluation, but the appropriate level varies by industry and growth potential.
• PBR (Price Book-value Ratio): Shows how many times the stock price is relative to its book value per share (BPS). It helps assess whether a stock is undervalued or overvalued in relation to a company's asset value. A PBR below 1x might suggest the stock is trading below the company's liquidation value.
• ROE (Return On Equity): A metric indicating how much profit a company generates for each unit of shareholder equity. It is crucial for measuring profitability and efficiency, as it shows how effectively a company utilizes its capital to generate profits. Generally, a higher ROE indicates a superior company.
• EPS (Earnings Per Share): Calculated by dividing net income by the total number of outstanding shares, it represents the profit attributable to each share. It's a fundamental indicator of a company's earning power and is used to assess growth.
• Equity Ratio: The proportion of total assets financed by shareholders' equity, indicating a company's financial soundness. A higher ratio suggests less reliance on debt and greater financial stability.
• Dividend Yield: The annual dividend per share divided by the current stock price, showing the return on investment through dividends. It's an important indicator for investors focused on income generation.

3. Importance of Qualitative Analysis

Qualitative analysis evaluates a company's value and risks that cannot be measured solely by numbers.

• Industry Trends and Competitive Advantage: Overall industry growth, differentiation from competitors, barriers to entry, pace of technological innovation, etc.
• Quality of Management and Corporate Culture: Management's vision, ability to execute strategy, governance structure, employee morale, corporate ethics, etc.
• Brand Strength and Customer Base: Brand value of products or services, customer loyalty, market reputation, etc.
• Technological Capability and R&D: Proprietary technologies, patents, investments in research and development that support future growth.

These qualitative factors are just as important as quantitative indicators in assessing a company's sustainable growth potential and future prospects.

Limitations and Risks of Fundamental Analysis

While fundamental analysis is a powerful tool, it is not infallible. It's crucial to understand its limitations and risks.

1. Time and Effort: Detailed company analysis requires significant time and expertise, including reading financial statements, industry research, and competitive analysis.
2. Uncertainty of Future Predictions: Fundamental analysis is based on past data and cannot perfectly predict the future. Company performance can be significantly affected by changes in economic conditions, unforeseen events (pandemics, disasters, etc.), and technological innovations.
3. Impact of Market Sentiment: While stock prices are theoretically supposed to converge to intrinsic value, in the short term, they can deviate significantly due to investor emotions, market sentiment, and speculative movements.
4. Information Asymmetry: Individual investors often do not have the same wealth of information or analytical resources as institutional investors or company insiders. It's important to recognize these differences in information quality and quantity.
5. Potential for Diverse Interpretations: The same data can lead to different interpretations and conclusions by different analysts.

Steps to Practice Fundamental Analysis

Here are common steps to effectively practice fundamental analysis:

1. Information Gathering: Collect a wide range of corporate IR information (annual reports, earnings reports, integrated reports), news releases, industry reports, and economic indicators. Utilize stock brokerage tools and analytical websites. [Affiliate Location: Stock brokerage information tools and financial analysis sites]
2. Financial Data Analysis: Interpret the three major financial statements, calculate and compare key investment ratios. By observing trends over several years, you can grasp a company's growth trajectory and stability. Comparison with industry peers is also effective.
3. Qualitative Information Evaluation: Delve deeper into assessing the company's business model, competitive environment, management strategy, and brand strength. Clearly identify the company's strengths, weaknesses, opportunities, and threats (SWOT analysis).
4. Company Valuation: Synthesize the results of quantitative and qualitative analysis to estimate the company's intrinsic value. Based on this, set a target stock price and compare it with the current stock price to inform investment decisions.
5. Portfolio Integration and Continuous Monitoring: Once an investment decision is made, integrate it into your portfolio, considering diversification. However, the process doesn't end with a purchase. Company performance and market conditions are constantly changing, so it's crucial to monitor regularly and revise investment decisions as needed.

Conclusion

Fundamental analysis is not just an investment method; it's a vital skill for understanding the essence of a company and building wealth from a long-term perspective, unswayed by market noise. From reading financial statements to key investment ratios and evaluating qualitative factors, there's much to learn. However, mastering these skills will allow you to approach the investment world with greater confidence. Always be aware of risks, and establish your own investment strategy through continuous learning and practice.

[Disclaimer Reminder]

• The analytical methods presented in this article are based on past data and do not guarantee future results.
• Investing is at your own risk, and final investment decisions are your sole responsibility.