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
