What Is a Fundamental Stock? A 5-Step Guide to Spot One

Fundai Education Team · October 17, 2026 · 7 min read

A fundamental stock is one whose value is measured by profit, sales, cash flow and the balance sheet; in five steps and one numerical example you learn how to examine it.

The answer to "what is a fundamental stock" is this: the stock of a company whose value can be measured with data reported on Codal, meaning profit, sales, cash flow and the balance sheet. In this guide you examine fundamental stocks on the Tehran Stock Exchange in five steps, using the P/E TTM, P/B and ROE ratios, and we follow one numerical example through to its result.

What is a fundamental stock and what features does it have?

A fundamental stock is a stock whose value is measured by the company's profit, sales, cash flow and balance sheet; the yardstick is company data, not market excitement.

Such a company reports a profit over several consecutive periods, and its sales can be followed month by month in the Codal monthly activity report. You see its operating cash flow in the cash flow statement, and you compare its debts with its assets and equity in the balance sheet. Each feature should be measured with a number, not with a general feeling.

By contrast, a speculative or volatile stock is one where the decision rests mostly on the price trend. Apply this label only with a numerical criterion, for example no profit in the reported periods or negative operating cash flow.

The law also takes a specific view of company profits. Under Article 90 of the Commercial Code, distributing profit and reserves among shareholders is permitted only after approval by the general meeting, and if there are profits, distributing ten percent of the annual net profit is mandatory.

Reported profit is not the same as distributable cash profit. According to a report by Donya-e-Eqtesad on 30 Dey 1391, the issuer must disclose the maximum distributable profit, taking liquidity and ability to pay into account, and the independent auditor and the statutory inspector give an opinion on it in a separate paragraph.

What is the five-step checklist for identifying fundamental stocks?

The five-step checklist means five numerical criteria, each read from a Codal report. Each step only describes a change and does not pass judgment on the quality of the company.

1. Step one: profit stability in the income statement Put the net profit of several quarters and several years side by side and count in how many periods it was positive, for example four quarters out of four.

2. Step two: sales growth in the monthly activity report Compare each month's sales amount with the same month of the previous year and write down the percentage change.

3. Step three: balance sheet health Calculate the debt-to-assets ratio as a percentage and the debt-to-equity ratio in times. Compare the latest balance sheet with the previous year's and state only the increase or decrease.

4. Step four: margin stability Look at the gross and net profit margins of several quarters side by side, that is, profit divided by operating revenue. The criterion is the gap between the highest and lowest value in percentage points.

5. Step five: operating cash flow next to net profit Take operating cash flow from the cash flow statement and compare it with the net profit of the same period. The clear criterion is whether it is positive or negative and the ratio of the two numbers.

You can see all five steps on each company's page in Fundai: the financial statements, the monthly report and the margin history are in that page's tabs. The path to each report is described in the user guide.

How do we calculate the financial ratios of a fundamental stock?

TTM profit and the three main ratios, that is P/E TTM, P/B and ROE TTM, are calculated from a few numbers in the income statement and balance sheet and a closing price.

Step one: profit and twelve-month earnings per share

Codal interim reports are cumulative; so trailing twelve-month (TTM) profit equals last year's profit plus this year's six-month profit minus last year's six-month profit. Twelve-month earnings per share (EPS TTM) is this same profit in rials, divided by the current number of shares.

Step two: P/E, P/B and ROE

P/E TTM divides the closing price by EPS TTM. P/B measures market value against equity, and ROE TTM measures TTM profit against the same equity.

That is, the market pays 10 rials for every rial of profit over the past twelve months, and TTM profit equals 25% of equity.

Basic EPS in the income statement is not the same as EPS TTM: its denominator is the weighted average number of shares in the period, not the current number of shares. Calculate P/E only with the EPS of that same basis.

The industry P/E in Fundai is not the simple average of the companies' P/E; it is the total market value of the industry's companies divided by their total net profit. If in a hypothetical industry total market value is 9,000 and total net profit is 1,000 billion tomans, the whole-industry P/E is 9, and the P/E of company "Alef", at 10, is above it. The basis of profit is explained at more length in What is the P/E ratio?.

How do we search for fundamental stocks with Fundai filters?

On the filters page you set conditions from financial ratios such as P/E TTM, P/B and ROE, and from the monthly report for sales growth, and you get a list of candidates; this list is the starting point of your examination.

1. Step 1: set the scope in "General filters" Limit the market to an industry, a sub-industry, a company symbol or one of your own watchlists so that the results are comparable.

2. Step 2: build a financial ratio condition From the "Financial ratios" family choose one of P/E TTM, P/B or ROE, set the operator ("greater than", "less than", "greater than or equal to" or "less than or equal to") and enter the number. For example, with P/E TTM less than 10 only companies whose ratio is under 10 times remain. This number is only an educational example.

3. Step 3: build the sales growth condition from the monthly report From the "Monthly report" family set the parameter "Sales amount / realized revenue", choose the comparison type "relative" and the base "same month of the previous year". The level of analysis is all products or a "specific product", and the domestic or export market.

4. Step 4: combine the conditions Conditions in one group apply together, and groups are combined with "or". A free account runs one condition; combining several conditions is in the multiple filters package.

5. Step 5: sort the result The result table is sorted by up to three columns, and the sort order is the order of your clicks; for example, ROE first and then P/B.

How do we measure a fundamental stock, and who makes the decision?

The examination path has three steps: numerical criteria, the five-step checklist with the ratios, and the filter to reach candidates. Each step starts from data reported on Codal, and the filter output is still unexamined.

In Fundai we make this data organized and comparable: financial statements, the monthly report and financial ratios sit side by side on each company's page, and the filter extends the same numbers across the whole market. Fundai does not give signals and does not predict the price or future profit; the decision about each symbol is yours.

The next action is clear: on the filters page build a condition on P/E TTM or ROE and open each output symbol on its company page. Check the income statement, balance sheet and cash flow statement against that company's report on the Codal system. Videos on screening and reading reports are in Fundai's learning section.

Past numbers are no guarantee of the future; the result of this examination only describes the reported periods.

#Fundamental Analysis #Fundamental Stocks #Stock Screener #Financial Ratios #Codal