How to Do Fundamental Analysis? Stock Selection Guide

Fundamental analysis is a method of examining a company's financial reports, management quality, sector position, and macroeconomic factors to determine its intrinsic value. Unlike technical analysis, fundamental analysis seeks to answer 'what to buy' rather than 'when to buy'. Its goal is to make long-term investments by finding stocks whose market price is below their intrinsic value (undervalued). While there are hundreds of companies in BIST 100, understanding which ones will grow in the future is only possible through disciplined fundamental analysis.

The first step of fundamental analysis is to examine the company's balance sheet and income statement. The balance sheet shows the company's assets, liabilities, and equity at a specific point in time. The income statement presents the revenue, expenses, and net profit achieved by the company over a specific period. When analyzing, one should look at whether the company's sales are increasing regularly every year. Companies that grow their sales and convert this sales growth into net profit are those that yield the most returns to their investors in the long run. In addition, the increase in the company's operating profit is the best indicator of how healthy the business is.

Debt structure is one of the most critical aspects of fundamental analysis. In periods of high interest rates, over-leveraged companies face serious financial risks. A company's 'Net Debt / EBITDA' ratio of less than 3 is generally considered healthy. Also, the current ratio (ratio of current assets to short-term liabilities) should be above 1.5. These ratios show whether the company can comfortably pay its short-term debts. Companies with strong cash flows that can generate cash from their operations are always safer harbors.

To determine whether a stock is cheap or expensive, multiples such as Price/Earnings (P/E) and Price/Book Value (P/B) are used. The P/E ratio indicates how much an investor is willing to pay for 1 TL of profit generated by the company. P/E ratios below the sector average may generally indicate that the stock is cheap, but the company's growth rates must also be taken into account. The EV/EBITDA multiple is also one of the most preferred ratios in the valuation of industrial companies. Comparing these ratios with competitors in the sector plays a critical role in reaching the right decision.

On our Sermaye Borsasi Telegram channel, we summarize companies' financial results as soon as they are published and present the most important ratios to our investors with charts. Fundamental analysis is a long-term investment approach that requires patience. When you choose the right company and partner with it, you can get a share of the company's growth and dividend payments without being affected by short-term price fluctuations. We recommend that you always make fundamental analysis data your starting point in your stock market investments.