Questions to ask when researching a company?
Typically, When I’m researching a company for a potential investment, This is the checklist I use. Note: The questions pertain to fundamentals and technicals. I believe both are necessary to execute a successful trade.
Questions to ask when researching a company?
- What does the company do?
- How does it make money? How many products/services does it sell?
- How much do those products/services contribute in revenue?
- What sector does it operate in?
- How are it’s peers doing?
- Compare to it’s peers, the industry, how does this company fare?
- What are the margins for their products/services? Are they growing? or are they shrinking?
- Is it a cyclical business? Does it depend on a commodity? does it depend on demographic trends?
- Are it’s products price sensitive? or inelastic?
- What’s the current market share of the company? How many players are in the industry?
- In terms of porter’s five, is it a concentrated industry, or fragemented?
- Does gov’t policies affect their business, what are the current regulations in the industry?
- In terms of valuation, Is it rich or cheap?
- Technically, is it trading in a range, trading up or down? What is the current chart pattern/
- Where will the company be in the next 5 years? what will make the company keep growing at this rate?
- Where will the industry itself be in the next 5 years?
- What are the main variables that affect this company?
- How many customers contribute to the revenue of this company?
- Does it have the ability to raise prices?
- How does mgmt get compensated, stock options?
- What are the institutional holdings of this company?
- What was the total return of the stock in the last 5 years, what factors contributed to that! Will those factors still be around in the next 5 years?
- Looking at depreciation patterns? accounts receivables? How’s the earnings quality?
- What is their working capital in a given year? Has it been going up, why? Has it been going up more than free cash flow?
- Have they been buying back stock?
- What is the current capital structure of the company? how has it changed in the last 5 years?
- What are the disclosures in the footnotes of the company?
- What is the future strategy of this company? Intrinsic growth? growth by acquisition?
- Looking at previous annual reports, has mgmt delivered on their strategy.
- Does the company depend on financing to expand their projects?
So, these are some of the questions you need to ask before you invest in a stock. In a later post, I’ll provide a detailed example of company analysis.
