Fundamental Analysis: P/E Ratio, Debt and Growth
What is fundamental analysis?
Fundamental analysis evaluates a company's intrinsic value using financial metrics: How profitable is it? How fast is it growing? How much debt does it carry? A solid fundamental profile significantly reduces the risk of entering a momentum-driven trade.
The 4 core metrics
P/E Ratio — Price-to-Earnings
The P/E ratio shows how much investors are willing to pay per dollar of earnings.
| P/E | Interpretation |
|---|---|
| < 15 | Cheap — potential value trade |
| 15 – 30 | Market average |
| > 30 | Expensive — growth must justify the valuation |
| Negative | Company is running at a loss |
Note: candidates from the selection universe often have very high or negative P/E ratios — here the P/E is a risk indicator, not a disqualifying factor.
Revenue growth
Is the company growing? Growth justifies higher valuations.
| Growth (YoY) | Signal |
|---|---|
| > 20 % | Strong — long bias |
| 5 – 20 % | Healthy — neutral |
| 0 – 5 % | Stagnating |
| Negative | Shrinking — short bias |
Profit margin
The net margin shows how much of revenue is left as profit.
-
20 % → Highly profitable business model
- 5 – 20 % → Solid
- < 5 % → Thin margins — vulnerable to cost increases
Debt ratio (Debt-to-Equity)
High debt increases bankruptcy risk — especially when interest rates are rising.
| D/E | Assessment |
|---|---|
| < 0.5 | Conservatively financed |
| 0.5 – 2.0 | Normal |
| > 2.0 | Highly leveraged — elevated risk |
How 360° scores fundamentals
Each metric generates a partial score. The total fundamental score determines Long / Neutral / Short:
P/E score + growth score + margin score + debt score
→ Weighted average
→ Long (positive), Short (negative), Neutral
An instrument with strong momentum but poor fundamentals gets a penalty in the aggregation — this is intentional.
Limitations of fundamental analysis
- Fundamental data is retrospective — quarterly reports arrive with a delay
- For early-stage growth companies (pre-revenue), the P/E ratio is irrelevant
- Short-term momentum often ignores fundamentals — the market can stay irrational longer than you can stay solvent
- Accounting tricks (goodwill write-offs, non-GAAP metrics) can distort figures
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