Fundamental Analysis

Relying on fundamental analysis for my stock selection, I would mainly use financial metrics to decide if a stock is attractively priced before I press the "trade" button. My main goal is to find long term investment opportunities as I believe that by focusing on high quality businesses trading at reasonable prices, I stand a better chance to gain good long term returns. Learning how to interpret financial metrics help me to value a stock. The cornerstone financial metric to value a business is the price-to-earnings ratio or better known as  P/E ratio. The P/E ratio equals the company's stock price divided by its latest reported earnings per share or EPS. A low P/E ratio could indicate that the stock I am buying $Alibaba(BABA.US)$ is at an attractive amount of value. The P/E ratio is the common valuation metric in financial analysis and is useful for comparing companies in the same industry $Amazon(AMZN.US)$ with similar growth prospects. Nevertheless, a P/E ratio that is attractive to one investor may not be so for another as P/E ratio can be interpreted differently by different investors depending on their investment goals, which may be more strongly oriented towards value or growth. As in the case of my investment in  $Alibaba(BABA.US)$, I am looking from a value investing perspective as its current stock price appears to be trading at below its intrinsic value and is thus an enticing investing opportunity for me in the long term where short term price fluctuations are less of a concern. Based on its P/E ratio, I believe that $Alibaba(BABA.US)$ presents a good opportunity to add at a reasonable price for further upside in the long term.  As Warren Buffett has once put it, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." Some may be concerned of a value trap as a stock could appear cheap but due to deteriorating business conditions, it may not be so. Despite the ongoing regulatory crackdown on Chinese tech stocks and the political risk, $Alibaba(BABA.US)$ is still growing in revenue and earnings and continues to see growth across segments. Fundamental analysis can help investors make better informed investment decisions by finding companies of good value and strong long term businesses to deliver great returns.
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