The big losses in tech darlings in recent weeks can’t underscore enough the importance of fundamental analysis of stocks. The likes of TSLA 📈 , PLTR 📈 and NVDA 📈 have wiped out hundreds of billions in stock market value leaving many investors with significant losses.
TSLA is down 50% from its high
The biggest loser among former tech darlings is TSLA. With the stock down by 50%, it will take as much as a 100% rise just to make up for the losses. TSLA stock is closely followed by PLTR, which is down by 34% from its recent high. As the following chart shows, bellwether stocks like AAPL or MSFT have also suffered big declines.
Source: Ziggma (through 3/13/2025)
Fundamental analysis of stocks flashes code red
For investors paying close attention to fundamental analysis, the warning signs did not go unnoticed. Valuation metrics for many tech stocks reached stratospheric levels. The fundamentals view of a portfolio containing PLTR and TLSA was showing rock-bottom valuation scores for these stocks. And it still does. PLTR’s valuation score currently stands at 6 while TSLA’s stands at 13.
What is fundamental analysis of stocks?
In essence, fundamental stock analysis serves to evaluate whether a company’s valuation is justified by its business prospects. These are often measured by earnings and revenue growth. If a company’s valuation is too high, i.e. the price you pay to participate in its earnings, the stock will ultimately revert to a more reasonable level – often referred to as reversion to the mean.
Also Read: How to Navigate Investing in a Stock Market Correction
Own your best portfolio!
Join 40,000 DIY investors building and tracking their investment portfolios with Ziggma.
Michael Burry’s approach to fundamental analysis
Michael Burry’s approach to fundamental analysis is deeply contrarian and data-driven, focusing on undervalued assets with strong intrinsic value. He meticulously analyzes financial statements and market inefficiencies to identify mispriced investments, often betting against overhyped assets or market bubbles. His strategy emphasizes long-term value investing, risk management, and a willingness to go against mainstream sentiment, as famously demonstrated in his short position against the 2008 subprime mortgage crisis.
What are the benefits of fundamental analysis of stocks?
Many investors have proven that when done well fundamental analysis, and especially a value driven approach, can drive stock market returns. Fundamental analysis of stocks helps investors identify undervalued or overvalued stocks by examining a company’s financial health, earnings potential, and long-term growth prospects. It provides a deeper understanding of a company’s intrinsic value, reducing reliance on short-term market fluctuations and speculative trading. In short, fundamental analysis supports long-term wealth creation by focusing on sustainable businesses with strong fundamentals rather than market hype.
Where are valuations now?
Valuations are still rich when measured on forward price to earnings. PLTR takes the crown with a forward PE ratio of 150x, followed by TSLA at 89x. Both face tremendous headwinds. PLTR may lose a significant chunk of revenue from government contracts as a result of the DOGE efficiency drive. And Tesla is seeing sales drop in all major markets. These developments are likely to weigh on earnings estimates. A lower denominator (earnings) in the Price to Earnings ratio could drive PE ratios up even further.
Source: Ziggma (through 3/13/2025)
Are these valuation levels supported by earnings prospects?
As the following chart shows, forward earnings growth estimates for this set of tech stock darlings are still elevated and well in the double digits if not triple digits, as is the case for Palantir.
Source: Ziggma (through 3/13/2025)
Given the recent sales decline, we recommend taking TSLA’s projected earnings growth projection of 37% with a big grain of salt, however. Earnings estimates for TSLA are likely to come down over the coming months as analysts update their models to capture the extent and speed at which sales have cratered.
It’s quite possible that PLTR’s earnings prospects will come down as well, if government spending on external consultants is cut back as part of DOGE’s efficiency drive. In any case, it is hard to justify a PE ratio of 150x. While in 2025 PLTR is projected to experience particularly strong earnings growth, in 2026, it will drop down to just 26%
NVDA’s valuation looks the most reasonable at the face of it. In fact, following the pullback, NVDA features a PEG ratio of 0.5, indicating good value. There is one big caveat. Will earnings quote projections hold up if AI requires less of its chips, after deepseek’s accomplishments?
As for AAPL, AMZN and MSFT, we’d like to see further pullbacks before we would consider these stocks good value.
Add fundamental analysis of stocks to your toolbox
Fundamental analysis is a powerful tool that helps investors avoid significant losses by identifying overvalued stocks and potential risks before they materialize. By focusing on key financial metrics, business performance, and market conditions, investors can make informed decisions rather than relying on speculation or market hype. This approach provides a clearer picture of a company’s true value, reducing exposure to sudden downturns and unsustainable price bubbles. Ultimately, fundamental analysis of stocks empowers investors to build a resilient investment portfolio and achieve long-term financial success with greater confidence.
Frequently Asked Questions
Is fundamental analysis of stocks difficult to learn?
Fundamental analysis of stocks may seem complex at first, but with a structured approach, it becomes very accessible. By learning key concepts like valuation and growth metrics, anyone can develop the skills to analyze stocks effectively. With practice and the right resources, even beginners can make informed investment decisions and avoid costly mistakes.
Can I improve my portfolio return with fundamental analysis of stocks?
Yes, fundamental analysis can help improve your portfolio returns by identifying undervalued stocks with strong growth potential. By focusing on financial health, competitive advantage, and industry trends, you can make smarter investment decisions and avoid overpriced or risky stocks. Over time, this disciplined approach can lead to better returns and reduced losses compared to relying on speculation or market trends alone.