Fundamental analysis is a method of analysing a company’s financial statements to determine its intrinsic value. It is done by looking at the company’s underlying business fundamentals, such as revenue, earnings, and cash flow.
The goal of fundamental analysis is to buy stocks when trading below their intrinsic value and sell them when they trade above their intrinsic value, and this can be done by yourself or with the help of a stockbroker.
While this approach is often used when trading stocks in the United States, it can also be effective when trading stocks in Japan. This article will look at how you can use fundamental analysis to benefit your stock trading in Japan.
Step to follow when using fundamental analysis
You can use fundamental analysis methods and tools in many different ways to improve your trading, and each investor has a unique process. But most investors do follow a set of common steps in this process that are tried and tested over time.
Most traders start the analysis process by gathering as much information about the company as is readily available and then some more. It includes reading its annual report, press releases, and analyst reports. Secondly, they analyse all the data and determine the company’s intrinsic value. You can do it by using a financial calculator or a financial software program.
After determining the company’s intrinsic value, you need to decide if it is an excellent time to buy the stock. It includes looking at the current market conditions and the stock’s price relative to its intrinsic value. If all of these factors look positive, you can go ahead and buy the stock.
Advantages of using fundamental analysis
One of the main advantages of using fundamental analysis when trading stocks in Japan is that it allows you to consider the cultural differences between the two countries. When looking at a company’s financials, it is essential to consider things like the level of debt that the company is carrying and how that is viewed in Japan. In addition, it is essential to look at the overall economic conditions in Japan and how they may impact a particular stock.
Another advantage of using fundamental analysis when trading stocks in Japan is that you can use it to spot opportunities that may not be as obvious when trading stocks in the United States. For example, a company doing well in Japan may be struggling in the United States could be a good investment opportunity. By looking at a company’s financials, you can better understand its performance in different markets.
While fundamental analysis can be a valuable tool for trading stocks in Japan, it is essential to note that it is not the only tool you should use. In addition to looking at a company’s financials, it is also essential to track its stock price and look at the charts. It will help you better know whether or not a particular stock is a good investment opportunity.
Risks of using fundamental analysis
One risk is that Japanese markets are closed on weekends so you won’t access the most up-to-date information. Another risk is that cultural norms and traditions may affect stock prices that don’t always correspond with those in the US. For example, a company considered solid and stable in Japan may not be seen as such in the US.
When trading stocks in Japan, it is essential to remember that there are cultural differences between the two countries. By taking into account these differences, you can use fundamental analysis to find profitable investment opportunities. In addition, it is essential to track a company’s stock price and look at the charts to get a better understanding of how the stock is performing.
Using these tools, you can make more informed investment decisions when trading stocks in Japan. Beginner traders are advised to use a reliable, reputable and experienced online broker like Saxo Bank before starting their investment journey.