4 Elaborate on Intrinsic value of securities and issues with fundamental analysis.Explain on company analysis and its areas of focus.
Answer:- Explanation on intrinsic value of securities Issues with fundamental analysis
This exercise capitalises on the observed discrepancy in market price and intrinsic value of company shares. In other words, the valuation gap exposed by the fundamental analysis is used by the investors to reap capital gains till price corrections take place in the market.
When the market is in equilibrium, the current market price reflects the average intrinsic value evaluations made by all investors. If this value differs for an investor, it effectively means differing from the market consensus on the expected return or risk or both. Such investors may profit by acting before the market consensus reflects the correct information.
Time constraints: Fundamental analysis offer excellent insights, but it is time-consuming. With passage of time valuations could be contradictory to the current stock price.
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