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Fundamental Analysis

Valuation Basics

Valuation connects price with business fundamentals. It should be interpreted with growth, profitability, sector context, and market regime.

What valuation tries to measure

Valuation connects a company's market price with its fundamentals. Common measures compare price with earnings, sales, cash flow, book value, or expected growth.

A valuation ratio is only useful when interpreted with the business model, sector, growth rate, profitability, balance sheet quality, and market environment.

  • Price-to-earnings
  • Price-to-sales
  • Enterprise value ratios
  • Growth and margin assumptions

Common interpretation risk

Cheap does not automatically mean attractive, and expensive does not automatically mean overvalued. A low multiple can reflect real business deterioration, while a high multiple may reflect durable growth expectations.

Good valuation work asks whether the assumptions behind the current price are realistic and whether the business can support them over time.

Detection Focus

  • Price compared with earnings
  • Sales and cash flow multiples
  • Growth expectations
  • Peer comparison

Quality Signals

  • Consistent assumptions
  • Sector context
  • Growth and margin support
  • Risk awareness

Invalidation

  • Multiple expansion without fundamentals
  • Growth slows
  • Cash flow quality weakens
Education pages explain market analysis concepts and scanner context. They are for learning and research, not financial advice or direct trade recommendations.