How to Pitch a Stock
Today I will walk you through how to pitch a stock, for your interview or for your project. It is required if you are getting into finance as an analyst, investment banker or a broker. To step in to the investment market, you need to know how to pitch a stock.
Let’s get started with, what is pitching a stock? means that you need to have a good knowledge of a stock and you should be able to explain all the details of that company to the person in front of you. First thing to do is to select a stock and have a detailed study about that stock. Including these points
Steps to pitch a stock
Company Overview
First you need to give company overview, means you have to explain about the company to a layman who has never heard about the company. Basically you are making the investor aware about the company he is going to invest. Overview means, what does the company do, which sector does it belong to, who are the competitors. Let’s say you selected Bajaj Auto, which is currently trading at Rs. 2738. You would know that it is an automobile company which manufactures 2-wheelers, and its competitors are hero and TVS.
Competitive Analysis
Now do a competitive analysis of internal and external factors. External factors including competitors, market share, economy condition, how is the sector performing, government policies. Internal factors include management of the company, new product launch or some product failure. Also study the micro and macroeconomics factor affecting your company. Like any changes in interest rates, dollar pricing, any change in international policies that affects your company. Any factor that affects your market or your company.
Do a good research on these factors because these factors really affect the share price and the market of your company, lot of things depends on these factors. You can use moneycontrol.com, nse india website and company’s website for these data.
Investment Thesis
Now is you really get into the analyzing the stock, with its finances. Here you actually tell why is this stock a good investment. Is it a good time to buy? You need to see all the finances of the company like balance sheet, ratios, cash flows, capital structure.
Understand the company’s performance via fundamental analysis and state actual intrinsic value of the company. Intrinsic value refers to the value of a company, stock, currency or product determined through fundamental analysis without reference to its market value.
You need to do fundamental analysis of a stock, and tell the investor why this stock is good or bad to invest in. Like intrinsic value, if it is lower than the current market price you should consider investing or vice versa. Fundamental analysis includes revenues, earnings, future growth, return on equity, profit margins, and other data to determine a company’s underlying value and potential for future growth.
Fundamental analysis gives you the actual valuation of your stock and it will be easy for you to state that whether the company is undervalued or overvalued.
Valuation
It is process of understanding the current value of the company, by evaluating the performance using certain methods.
Discounted cash flow analysis is one method, which calculates the value of a business on its earnings potential. Other methods include looking at past and similar transactions of company or asset purchases, or comparing a company with similar businesses and their valuations.
Risk
In this step you have to mention what could possibly go wrong, and cause the stock price to fall. This step is important because no matter how good analysis you do, there are various factors that could result in fall of the market. Like macro factors, sudden fall or rise in interest rate, inflation, some sudden change in political environment. And micro factors, company isn’t able to compete with other markets due to low pricing etc.
Catalyst
It is an event which changes the price up or down dramatically. A catalyst can be almost anything: an earnings report, an analyst revision, a new product announcement, a piece of legislation, an offer to buy a company or merge, a comment from a CEO or government official, a resignation of a company CEO or government official or the conspicuous absence of a company officer at a special event.
Conclusion
I know for some of you it is difficult to understand most of the part I have mentioned, but the basic thing to remember is if you want to be a financial analyst and want to get into stock market, you need to understand the above steps and most importantly fundamental analysis.
