Performing Fundamental Analysis of a Share
AutoShare helps you to decide which shares may be worth buying based on their price movements. This does not necessarily mean, of course, that the underlying company is a good one, with golden prospects. Share prices that rise based on false rumours or expectations can just as easily fall again when the truth is revealed. It is much safer to support the results of technical analysis with those of fundamental analysis.
To display fundamental information about a share in any of the AutoShare lists, right click the share and choose the Show Fundamentals option from the pop-up menu. The information is shown in your default web browser. Note: This option is not available for shares or indices imported with the Import button on the Indices tab.
You can also obtain similar information from the Financial Times web site, as well as from on-line stockbrokers with whom you hold an account.
The following summarizes the most useful fundamental information.
Price to Earnings ratio (P/E): the share price divided by the earnings per share. A cheap share generally has a low current or prospective P/E compared to its peers (other shares in the same sector, such as Banking). If a company is loss making, its P/E is negative. Unless its future prospects are good, it is best to avoid a share with a negative or particularly high P/E.
Broker consensus: Buy/Sell/Hold recommendations by analysts. These provide a very quick guide to whether a share is worth buying. However, it is best to buy only shares for which the majority of a large number of analysts have a BUY recommendation.
Broker forecasts: Predictions by analysts about growth prospects. These are summarised as forecast turnover, profits, and P/E for the next couple of years.
Directors’ dealings: details of the buying and selling of the shares by the company’s directors.
Company news: recent news concerning or released by the company.
Company profile: information about what the company does, the number of employees, etc.
Financials: details of the annual accounts submitted by the company for the last few years, including the Balance Sheet, Cash Flow Statement, and Profit and Loss.