While technical analysis asks when you should buy, fundamental analysis asks what you should buy. It evaluates the true value of a company — and compares it with the current stock price.

What Is Fundamental Analysis?

Fundamental analysis examines a company economic health using financial metrics, business model, competitive position, and future prospects. The goal: Find undervalued stocks the market has not yet recognized.

The 8 Most Important Metrics

Valuation Metrics

P/E Ratio (Price-to-Earnings): Stock price divided by earnings per share. A P/E of 15 means: You pay 15 euros for 1 euro of earnings. DAX average: approximately 14-16. Tech stocks: often 25-40.
P/B Ratio (Price-to-Book): Market value divided by equity. Below 1 = stock trades below book value (potentially undervalued).
P/S Ratio (Price-to-Sales): Market value divided by revenue. Useful for loss-making growth companies where P/E is not applicable.

Profitability Metrics

EBIT Margin: Operating profit relative to revenue. Shows how efficiently the company operates. Above 15% is good, above 25% is excellent.
Return on Equity (ROE): Profit relative to equity. Measures how effectively management deploys capital. Buffett minimum: 15% per year.
Free Cash Flow: Money remaining after all investments. The most honest metric — profits can be manipulated, cash flow cannot.

Debt Metrics

Debt-to-Equity Ratio: Debt divided by equity. Below 0.5 is conservative, above 2 is risky.
Interest Coverage Ratio: EBIT divided by interest expense. Below 3 means the company has difficulty servicing its debt.

The Buffett Checklist

Warren Buffett uses simple but strict criteria:

Understandable business model (Can you explain it to a 10-year-old?)
Durable competitive advantage (Moat): Brand, patent, network effect, cost advantages
Consistent earnings growth over 10+ years
Low debt
High ROE (above 15%)
Competent, honest management
Purchase price below intrinsic value (Margin of Safety)

Fundamental Analysis + AI: The Combination

Our AI analyzes hundreds of fundamental data points simultaneously and compares them with industry averages and historical values. It detects earnings trend reversals earlier than human analysts — because it reconciles quarterly earnings, management guidance, and analyst expectations in real-time.

The strongest signals arise when technical and fundamental analysis agree: A technically undervalued stock with strong fundamentals is a gold strike.

Bottom Line: Fundamental analysis requires patience and diligence. But it protects you from the biggest risk: investing in a bad company just because the chart looks good.