You will also be getting brief posts on “How to analyse Companies/ Stock Analysis” along with our other equity research articles,
So, this is going to be quite enriching experience to read inputs on equity research methodology used by most successful wealth managers & from our equity research team as well.
Most recently we posted 3 most important points for investing in stock market:
These are must to know principles if anyone plans to enter stock market for creating huge wealth.
Fundamental Analysis of a company
Brilliant investment managers are not concerned about short term fluctuations in stock market prices. Rather, they focus on investing in quality stocks for long term duration. Secondly, research focuses on evaluating valuations. Thus, finding quality stocks at lower valuations.
Fundamental Analysis of a company includes numerous factors to look upon. To list a few:
- Quality of Management
- Industry Analysis
- Peer Comparison
- Shareholding pattern
- Business classification
- Segment wise performance
- Cash Flow Analysis
- Ratios Analysis
- Expansion Plans
- Growth Plans by management
- Though, the list is not limited to these factors
Analysis on Management
There are examples of numerous stocks that performed outstanding in last many years. And thus, created huge wealth in long term for investors.
“Excellent Management can make the difference between a mediocre business and an outstanding one, and poor management can run even a great business into the ground”
Such examples include:
HDFC Bank’s revenue grew at a CAGR of ~20% over last 10 years. Moreover, its profit grew at a CAGR of ~26% in last 10 years. The company created huge wealth for investors since 2010. The company’s strong performance has been consistent. The management created trust in the name with its highly responsive operations system as well as client services.
Asian Paints’ revenue growth in last 10 years is at a CAGR of ~14% over . Also, its profit grew at a CAGR of ~18% in last 10 years. The company was started in a garage in Gaiwadi, Girgaum – Mumbai by four friends Champaklal Choksey, Chimanlal Choksi, Suryakant Dani & Arvind Vakil. Mr Ashwin Dani (son of Mr. Suryakant Dani) is now the Chairman of Asian Paints. Mr. Manish Choksi (son of Mr. Mahendra Choksi) is now non executive Vice-Chairman. Son of Mr. Arvind Vakil, Mr. Abhay Vakil is also on the board. All members of senior managements carry varied experiences & since long periods.
Nestle India is one of the strongest players of Fast Moving Consumer Goods (FMCG) Industry. Mr. Suresh Narayanan is Chairman & MD. He joined the company as MD w.e.f. 29th October, 2015. Mr. Narayanan began his career as a management trainee with Hindustan Unilever, where he held numerous positions of increasing responsibility in Sales, Marketing & General Management. Also, he worked with Colgate Palmolive in India. He has over 30 years of rich and exhaustive experience in the FMCG Industry. Moreover, he held senior management & top leadership roles in leading global companies.
Likewise, where there are examples of effectively managed enterprises, there are many examples of companies who could not gain trust again of the investors, once being under the limelight for non-investor friendly acts. Such companies can never get back to their valuations once lost.
It is rightly said “There is no smoke without fire”. Market always reacts in advance. Therefore, one needs to be watchful of the managerial decisions and corporate actions.
What factors to look for during stock analysis:
- Read at least 10 Balance Sheets of the company
- Read Management Discussion & Analysis
- Attend Concalls of each quarter end
- Read Concall Transcripts for previous conferences held
- Analyse Corporate Actions
- Read or listen to interviews of managements in media
- Know about family structure of management & how are they involved in the company
- Shareholding pattern
- Top shareholders from management family
- Remuneration drawn
- Also, whether the compensation of management tied to company’s operational performance
- Increase in managerial remuneration w.r.t. earnings & profit
- Comparison of remuneration with the industry peers
14. Skin in the Game:
Whether management has stake in the success & growth of the company? The perfect example for this is Government companies. Mostly, government companies are not wealth creators. This is because the leaders do not hold stake in the growth of company. Thus, are not passionate for company’s excellence.
15. Walk the Talk:
The other most important factor to check for is – If the management is actually acting on what they place assertion on in the company’s public reports & management’s comments. Management gives out the expected performance metrics for upcoming periods or expansion plans in near future or on other growth plans. One needs to be cautious about such assertions and see whether they are being brought to reality; i.e. whether the management is performing the acts which they report to the stakeholders.
Our team’s investment philosophy: Our equity research team bets on the managements of companies. This can be said as our primary checklist point.
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Disclaimer: The report only represents personal opinions and views of the author. Therefore, No part of the report should be considered as recommendation for buying/selling any stock. Also, the report & references mentioned are only for the information of the readers about the industry stated.