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Company analysis
Below are the things you can think about and include in your st
Company analysis
Below are the things you can think about and include in your strategy report.
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You are welcome to add other factors that are not displayed here to your report.
COMPANY NAME
Industry: XXX
Recommendation: Buy/Hold/Sell
Current Price: $XXX
Target Price: $XXX
Company Overview
Step i: choosing a company
❖ What company do I have a unique knowledge on?
❖ What is a product that I can’t live without?
❖ Stock screening method
✓ Growth investor: EPS growth>20%
✓ Value investor:P/E<10X, and P/B<1X
Step ii: company overview
❖ what does the company do? how does the company make money? what is the business model?
❖ key statistics
Valuation related:
✓ market cap = price x # of shares
✓ P/E ratio P/B ration ROE....
✓ dividend yield = dividend per share / price
✓ Free cash flow yield = FCF per share / price
Company basic info related:
✓ sales by product, by geography
✓ market position
✓ shareholders
Investment Thesis
What is investment Thesis - Thebasicguidingprinciplesaninvestorestablishestojustify:
❖ Why he owns the company
❖ What he expects to happen
❖ What he sees that the market does not give the company credit for
Key questions:
❖ Why this stock is a good investment?
❖ What do i see that the market doesn’t?
❖ why the company will last?
❖ what is making this company grow?
❖ ....
Industry Analysis
Key things to consider:
❖ Business cycle
❖ Industry performance by business cycle phase
❖ Industry growth rate
Macro/Micro Trend
Pretty much anything as long as it affects the broader market. For example:
❖ where the economy is headed
❖ interest rate
❖ political influences
❖ industrial chain
❖ ....
Competitive Positioning
Part i: what is the market share?
Part ii: economic moat types:
❖ brand
❖ low cost
❖ distribution
❖ network effect
❖ high switching cost
❖ ....
Part iii: porters 5 forces
❖ customers power
❖ suppliers power
❖ barriers to entry
❖ threats of substitutes
❖ competitive rivalry
Revenue Drivers
What are the main drivers behind the company’s revenue growth? For example:
❖ Emerging Markets
❖ Pricing Power
❖ New Products
❖ ....
❖ Any other factors that you can think of and that make sense
Financial Analysis
What are the financial statements and key forecasts for the company like? Think you may discuss:
❖ Profitability
❖ Growth
❖ Liquidity
❖ You may also attach the snapshot of certain financial statements or statistics in the report
Valuation
Valuation is about finding the intrinsic value of the company.
Method i: relative valuation method
❖ rule of thumb: expected EPS x P/E ratio = target price
❖ also works with other ratios: P/B, EBITDA, free cash flow yield…
❖ pros: straightforward
❖ cons: shortsighted, can forecast at most 3 or 5 years
Method ii: discounted cash flows (DCF) method
❖ discount rate: cost of capital; or rate of return
❖ pros: can forecast many more years into the future
❖ cons: complicated with a lot of assumptions
Investment Risks
What are the main investment risks for the company? Two main categories to consider:
Risk sector:
❖ relevant: the risk is relevant to the company and the business
❖ thoughtful: consider industry peers
❖ manageable: worst cast scenario and how to rectify
Catalyst sector:
❖ a specific thing
❖ a short-term event
❖ that could boost the stock to rise
Rule of thumb: anticipate the risks and have an answer to them!
Management & Governance
Make a comment on the company’s management, and identify is the company is led by the right person, and if the management’s interest is aligned with shareholders.
Conclusion & Appendices
Conclusion
❖ current price
❖ target price
❖ implied upside in terms of percentage
Appendices:
❖ it’s good to go over some of the appendices
❖ show where you got your number from, such as income statement, balance sheet and cash flow statement
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