The classical fundamental analysis approach is to compare the various ratios of similar stocks and declare the one with the "worst" ratios undervalued. So if stock A has a price/earnings ratio of 10 and stock B has a price/earnings ratio of 15 and their prospects are equally good, then a fundamental analyst might declare stock A "undervalued". If the stock price then goes up, the analyst is a genius. But if they both go down, they were both obviously "overvalued". A few people can play this game successfully, but I think there's a fatal flaw to this approach that makes it very difficult for an amateur to play. This approach assumes that the market is stupid, and an individual can outsmart it. I would argue that the market is rarely stupid, it's just overreactive and overemotional. The only time a stock is reliably "undervalued" is when transitory or irrelevant news induces overreactive selling. There are periods when stocks reporting earnings a penny below expectations are routinely hammered 10 to 25 per cent. If the company isn't totally negative on the future, there is usually a bounceback as bargain hunters come in. My favorite "undervaluation" moment is when an analyst downgrades a stock and knocks it down 5-10 per cent. Most analysts aren't any smarter than the market. If the company is doing well and the stock is in a decent uptrend, it will recover in a few hours or days.
This disturbs many people, but the truth is prices are driven by emotion and psychology, not financial ratios. An ordinary person can take advantage of this fact when emotion gets out of hand. I think this is a more reasonable goal than trying to be the next Warren Buffett in one's spare time.