This document template is designed to help you systematically research and analyze publicly traded companies on the US stock market (e.g., NYSE or NASDAQ) before making investment decisions. The goal is to focus on the company's business performance, financial health, and market position to determine if its shares are worth buying. This process emphasizes fundamental analysis, which involves evaluating the underlying value of the company rather than short-term price fluctuations.
Investing involves risk, and this template is for educational purposes only—not financial advice. Always consult a professional advisor and use reliable data sources like SEC filings (e.g., 10-K and 10-Q reports via EDGAR), company investor relations pages, financial platforms (e.g., Yahoo Finance, Bloomberg, or Morningstar), and analyst reports.
Follow this structured process to build a comprehensive understanding of any company. Document your findings in each section for easy reference and comparison across companies.
1. Company Overview
- Business Description: Summarize what the company does, its industry, products/services, target markets, and competitive landscape. Identify key revenue streams (e.g., segments like software, hardware, or services).
- History and Leadership: Note founding date, major milestones, CEO and management team experience, and any recent changes.
- Market Position: Assess market share, competitors (e.g., via Porter's Five Forces: suppliers, buyers, substitutes, new entrants, rivalry), and industry trends (e.g., growth in tech vs. decline in fossil fuels).
- Sources: Company website, annual reports, industry reports (e.g., from Statista or Gartner).
2. Qualitative Analysis
- SWOT Analysis: Strengths (e.g., strong brand), Weaknesses (e.g., high debt), Opportunities (e.g., expansion into new markets), Threats (e.g., regulatory changes or economic downturns).
- Economic Moat: Evaluate competitive advantages like patents, network effects, or cost leadership (inspired by Warren Buffett's philosophy).
- Risk Factors: Review regulatory risks (e.g., antitrust for tech giants), geopolitical issues, supply chain vulnerabilities, and ESG (Environmental, Social, Governance) factors.
- News and Sentiment: Check recent news, analyst ratings, and social media buzz (e.g., on X or Reddit) for red flags like lawsuits or scandals.
3. Quantitative Analysis: Financial Review
- Gather financial statements (income statement, balance sheet, cash flow statement) for the past 5-10 years.
- Calculate and trend key metrics (see Top 10 Metrics below).
- Compare to industry peers (e.g., using benchmarks from S&P sectors).
- Forecast future performance based on trends, management guidance, and economic indicators.
4. Valuation Assessment
- Use metrics to determine if the stock is undervalued, fairly valued, or overvalued.
- Models: Discounted Cash Flow (DCF), comparable company analysis, or dividend discount model if applicable.
- Set buy/sell criteria: E.g., only buy if P/E is below industry average and ROE > 15%.
5. Investment Decision
- Thesis: Write a 1-page summary justifying why (or why not) to buy shares, including target price and holding period.
- Portfolio Fit: How does this fit your overall investment strategy (e.g., growth, value, dividend focus)?
- Monitoring Plan: Set alerts for earnings releases, price thresholds, or news events.
6. Documentation and Review
- Update the document quarterly or after major events.
- Track performance post-purchase to refine your process.
Based on business performance, focus on these fundamental metrics. They help assess profitability, efficiency, growth, and risk. Calculate them using financial data and compare over time and against peers. I've selected these as the most commonly recommended across investment resources, prioritizing those tied to core operations.
Earnings Per Share (EPS): Measures profitability per share. Formula: Net Income / Outstanding Shares. Look for consistent growth; declining EPS signals issues. Ideal: >10% annual growth.
Price-to-Earnings (P/E) Ratio: Compares stock price to earnings. Formula: Market Price / EPS. Lower P/E may indicate undervaluation, but compare to industry averages (e.g., tech often higher than utilities).
Return on Equity (ROE): Shows how efficiently management uses shareholders' equity to generate profits. Formula: Net Income / Shareholders' Equity. Target: >15-20% for strong performers.
Debt-to-Equity (D/E) Ratio: Assesses financial leverage and risk. Formula: Total Debt / Shareholders' Equity. Lower is better (<1 for most industries); high debt can amplify gains but increases bankruptcy risk.
Price-to-Book (P/B) Ratio: Compares market value to book value. Formula: Market Price / Book Value Per Share. Useful for asset-heavy industries; <1 suggests undervaluation.
Price/Earnings-to-Growth (PEG) Ratio: Adjusts P/E for growth. Formula: P/E / EPS Growth Rate. <1 indicates potential undervaluation relative to growth prospects.
Revenue Growth Rate: Tracks top-line expansion. Formula: (Current Revenue - Prior Revenue) / Prior Revenue x 100. Consistent 10-20% growth shows business momentum.
Free Cash Flow (FCF): Cash generated after capital expenditures. Formula: Operating Cash Flow - CapEx. Positive and growing FCF supports dividends, buybacks, and reinvestment.
Dividend Yield: Income from dividends. Formula: Annual Dividend / Stock Price x 100. Attractive for income investors (3-5%), but ensure payout ratio <60% for sustainability.
Price-to-Sales (P/S) Ratio: Values company based on revenue. Formula: Market Cap / Revenue. Useful for growth stocks with low profits; <2-3 often favorable.
Appendix: Data Sources and Tools
Free Tools: Yahoo Finance for metrics, SEC EDGAR for filings, Finviz for screeners.
Paid Tools: Bloomberg Terminal, FactSet, or Value Line for deeper analysis.
Tips: Use Excel or Google Sheets to track metrics over time. Automate with APIs if tech-savvy.