The procedure commonly used by investment analysts to estimate the intrinsic value of a stock traded in the stock market consists of the following steps:
· Estimate the expected earnings per share of the stock. · Establish a price earning multiplier (or P/E ratio). · Develop a value anchor and a value range.
However, we consider it appropriate to advise you the investor at this stage itself, that there are three main obstacles in the way of successful fundamental analysis. Namely:
· Inadequate and/or incorrect financial data pertaining to the stock under study. · Future uncertainties. · Irrational stock market behaviour.
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