tools

Fundamental Value Indicator® - The Fundamental Rating

To obtain the Fundamental Rating we first calculate the 'Relative Fundamental Value' and the 'Relative Under/Overvaluation'.

Relative Fundamental Value

Ultimately the Fundamental Value Indicator® is the sum of all the values that are assigned to the different criteria. The resulting sum is converted into a value on a scale of -100 to +100 in order that companies can be compared. The Fundamental Value Indicator® specifies this valuation as the Relative Fundamental Value.

  • Negative result: quality companies with good future prospects. A higher value is given to a higher quality company with better future prospects.
  • Positive result:Lower quality companies with lower expectations of growth. The score gets more negative as the quality of a company decreases, the risks increase and the future prospects get worse.

The Relative Fundamental Value is only calculated for companies with at least 10 years of fundamental data.

Relative Under/Overvaluation

The next step is to compare the value of the stock with the stock price, which results in the Relative Under/Overvaluation. The Relative Under/Overvaluation is also reported on a scale of -100 to +100.

  • Score '0': l'action cote à sa juste valeur en bourse.
  • Negative score: score indicates that a stock is listed under its value. The size of the negative value gives an indication of how much the stock is undervalued. The lower a stock is listed under its value, the more negative the score becomes and the stock is therefore a better buy.
  • Positive score: l'action cote au-delà de sa valeur. Plus une action est surévaluée, plus son score est élevé et plus il convient d'envisager de s'en séparer.

Fundamental Rating

The final value that the Fundamental Value Indicator® assigns is the Fundamental Rating. The Rating is calculated by changing the sign on the Relative Under/Overvaluation, adding it to the Relative Fundamental Value and dividing the sum by two.

A weak Fundamental Rating does not necessarily mean that a stock is not as good. It could also just be that the stock price is too high compared to its Current Fundamental Value.

The Fundamental Rating can range from -100 to +100.

  • Negative rating: indicates that the stock is overvalued on the stock market. As the stock becomes more overvalued on the stock market, the rating becomes more negative. Stocks with a negative rating should be sold.
  • Positive rating: indicates that the stock is undervalued on the stock market.The higher the rating, the better buy the stock is.

The Fundamental Rating only calculated for companies with at least 10 years of fundamental data.

Important remark

The Fundamental Rating that the Fundamental Value Indicator® gives to a stock depends on the difference between the dynamic value of the stock and the stock price.

The rating indicates to what extent a stock is under or overvalued on the stock market but it does not give any indication of the price trend. In principal a stock should, however, only be purchased when its price is fundamentally low and is rising on the stock market. When a stock is fundamentally undervalued and is falling on the stock market one should wait for a trend change.

A stock should only be bought when the falling price of the undervalued stock has started to rise again. Although the buyer is paying more at that point, the earnings for the length of time that the stock is owned will probably be much larger.