To determine whether a stock is a good investment, fundamental analysis is essential. Just as people carefully evaluate a potential life partner before getting married, fundamental analysis examines a company's background, qualities, and overall potential. This helps us decide whether or not to invest in that particular stock. The following are practical steps for conducting fundamental analysis:
Examine the company's business sector and determine whether it has good future prospects. Several sectors have promising futures, such as the technology sector.
Look for companies that are capable of generating substantial profits. We can assess this through ROE, NPM, and other profitability ratios. Look for companies with positive and high figures!
Pay attention to earnings growth. Have the company's profits continued to increase over the past several years?
Consider the amount of dividends paid. Look for companies that regularly distribute dividends. Remember, there are two ways to earn returns from stock investments: Capital Gains and Dividends!
Consider the company's management. Does the company implement GCG (Good Corporate Governance)? Naturally, we want to own shares in a company managed by people who are ethical and competent in their respective fields.
Pay attention to the stock's valuation. There are many ways to determine stock valuation, but the simplest methods are to examine the PER (Price-to-Earnings Ratio) and PBV (Price-to-Book Value). Lower figures generally indicate that the stock is relatively cheaper. Wouldn't it be great if we could buy a Mercedes-Benz at the price of a Bajaj?
Once we have found stocks with the characteristics described above, we can simply let our companies grow over time. Eventually, we become sleeping investors. Remember, this is only a practical introduction to fundamental analysis. There are, of course, more complex steps involved, which we will discuss in the Capital Market class at STIE YKPN Business School.
Isnanda Zainur Rohman, S.E., M.M.
