Question

long explanation:

Can fundamental analysis be profitable, or market just too efficient to justify the effort? Being familiar with P/E ratios by now, what has happened to the values for the other relative valuation ratios – that is, the P/BV, P/CF, and P/S ratios?

Answer 1

Fundamental analysis means analysis of the financial statements of the company on the basis of intrinsic value of the company which can be calculated using absolute methods of valuation or relative valuation methods and they are used to make investments into the company on the basis of overvaluation or undervaluation, this can be used in a market which is not efficient enough because in an Efficient market, there will be no discrepancies between the price and value because all the publicly available information and privately available information have already been discounted into the stock price and there would not be any scope for the investor to make an excess rate of return through fundamental analysis because the intrinsic value of this share would always be equal to the current market price of the share and these fundamental analysis are not going to help in making an additional rate of return.

price to earning is the most common method of multiple valuation method which is used to reflect the current market value of the company in respect of the Earning per share and this is most common valuation method which is based upon the multiples valuation according to the industry.

Rest of the valuation methods like price to book value method and price to cash flow method along with price to sales method are not that widely applicable as price to earning method, because price to earning method is reflecting the current market value of any share based upon the demand and the supply and the sentiments of various market participants in the market so other price to book value or cash flows are mostly dependent upon the historical valuations and they are not that relevant as price to earning method because these cash flows methods are complex in Calculation and they are not used by normal investors

Price to book value and price to sales ratios are also not adequately used because the price to earning method is always preferred by most of the investors while doing the valuations while investment into a company.