Analyzing Companies &Industries
In this unit, we will learn how to analyze trends and their effect on certain stocks or industries. More than just knowing or having some interest in public companies here and there, it is critical to take your interest one step further with sound review and research. Hopefully, by the time you have taken an interest into investing and are willing to take that first leap, you can make a list of “interest stocks” that you will be excited to look into deeper to really understand their core business model. More than believing that these MAY be good investments, it is really up to you to use the strategies listed in this unit and the next unit to confirm your beliefs!
As mentioned briefly in the last unit, conducting a fundamental analysis is one the most critical steps in the process of investing. It is the method of measuring a security’s intrinsic value, using both quantitative and qualitative factors, to ultimately come to a conclusion of the stock’s real or “fair” value. This concept relies on the assumption that the current price of a stock on the market does not fully reflect the true value of a company, with all of its publicly available data. The purpose of the analysis is to give a “fair price” that will give you a price closer to the true value of the stock.
The fundamental analysis can be categorized into quantitative and qualitative categories. Quantitative considerations include looking at revenues, earnings, future growth, profit margins, return on equity, and other hard financial data to determine the company’s underlying value. We will cover more of this in the next unit. For this unit specifically, we will look at qualitative factors that look at the intangible characteristics of business, like its brand-name recognition, patents, quality of its C-suite executives, and more. The fundamental analysis considers both macro and micro level perspectives, typically studying economic well-being first then concentrating down to the specific industry and finally the individual company.
How to Research Companies
Now that you have a small glimpse into the depth of research you have to be diving into, you’re probably feeling a bit overwhelmed. Here are some resources you can use if you’re not sure where to begin:
Website: Identify the core of businesses by looking through the company’s website and its competitors’ websites. Many analysts and companies release investment recommendations, and you can find research reports and blogs anywhere online. Some helpful websites include seekingaplha.com and earnings.com. On top of everything, try to read the news daily, using platforms like Bloomberg and the Economist.
Study Management: Try to understand the quality of management by reading their bios and learning about their past experience. Ultimately, try to learn how the industry perceives them.
Primary Research: One of the most fun parts of investing is investing into companies you know, love, and care about. You can conduct primary research through visiting the company’s stores and using the products for a gauge of quality.
Financial Reports: Annual and quarterly reports are incredibly helpful, even past the financial statements. For qualitative analyses, try to focus on Management Discussion & Analysis in order to learn about their strategy.