I wrote this back in 2015.. but its still relevant so I thought I share it:
The underlying assumption behind ALL fundamental analysis is that the markets will eventually recognize the underlying value of the security. If you are long a stock, you believe that there’s a divergence between price and value – and that the markets are incorrectly pricing it below what it’s actually worth. If you are short a stock, you believe that the market is placing a far greater value than whatever the business is actually worth.
In truth, learning how to value a business is the easiest part of investing. Through careful study and due diligence, it is not hard to arrive at an estimate of what a business is worth. The difficulty comes in waiting for the market to recognize what we believe to be true.
The traditional bread and butter approach of a value