Stock market analysis is a way of evaluating a particular asset class, sector, company or the stock market as a whole. Investors use stock analysis to make buying and selling decisions, and plan their investment strategies.
There are generally three types of stock analysis: fundamental analysis, technical analysis and sentimental analysis.
Fundamental analysis is a type of stock market analysis that seeks to measure the intrinsic value of a company and its stock. The goal of fundamental analysis is to determine whether a company’s stock is fairly priced.
During this type of analysis, someone examines financial statements, market share and more to determine the value of the stock. Information that may be relevant includes the company’s assets and liabilities, earnings per share, price to earnings ratio, price to book value ratio and more. Using this information, an investor can decide whether to buy, sell or hold the stock.
While fundamental analysis requires an investor to go into the weeds in a company’s financials, technical analysis looks at statistical trends to predict future price changes. During technical analysis, an investor considers past trading activity and price changes of a particular stock to predict what will happen in the future.
This type of analysis is done under the assumption that the market price of a company reflects its actual value and that history is likely to repeat itself. An investor can see where the current stock price is in a pattern to predict what will happen to the stock price in the future.
Sentimental analysis focuses less on the company’s finances or past performance, and more on the attitudes of investors. This type of analysis can help someone determine how investors view a particular company or stock, which can help to predict future price trends. During sentimental analysis, an investor can look to social media and recent events for either positive or negative sentiments about a company.