Fundamental analysis is a stock valuation method that uses financial analysis to predict price movement (compare to technical analysis).
Fundamental analysis attempts to analyze the company's operations and the market in which the company is operating to understand the stability and growth potential of a company. It is presumed that this will be reflected in the stock price. Another application of fundamental analysis presumes that the market is indeed somewhat efficient, but some stocks (perhaps because they are small and therefore not closely watched) are either over- or undervalued. This use of fundamental analysis can be viewed as a type of arbitrage.