Fundamental Research

One of the cornerstones on which our research rests is fundamental analysis. Fundamental analysis is a method of evaluating security in an attempt to assess its intrinsic value, by examining related economic, financial, and other qualitative and quantitative factors.

We are of the opinion that qualitative factors such as quality of management, competitive advantages within an industry and the state of global economy are of importance when performing fundamental analysis.

At Merit Stocks We Focus Both on Macro and Micro-Fundamentals

As macro-fundamentalists we are concerned and indeed study broad economic factors that affect the universe of securities as a whole or at least in large groups: inflation rates, interest rates, exchange rates, unemployment rates, and the rates of economic growth at the national or even international level.We monitor the actions of policy makers such as South African Reserve Bank, Federal Reserve Bank and aggregate investor and consumer sentiment. We use this information in our analysis to estimate impact of these broad economic trends on group of securities as well as individual issues. In this approach we adopt top down method of analysis, starting with the overall economy and working down to specific companies and securities

As micro-fundamentalists we focus in our research on a company financial statements in order to understand its future performance. We analyse the history of this security, noting how the price has moved in response to changes in economic factors that have been shown to influence it: earnings, industry conditions, new product introductions, improvements in production technology, management shake-ups, growth in demand, shifts in financial leverage, new plant and equipment investments, acquisitions of other companies and divestitures of lines of business and so on.

The end goal of our fundamental analysis is to produce a quantitative value that an investor can compare with a security’s current price, thus indicating whether the security is undervalued or overvalued.

Fundamental analysis uses real, public data in the evaluation a security’s value. Although we mostly use fundamental analysis to value stocks, this method of valuation can be used for just about any type of security.