My stock selection process
Strategic positioning, growth drivers, financial robustness, great management and governance quality
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Below I dive into my investment process, which is an investor’s blueprint to analysing companies and determining which ones fit your investment mandate and are worth including in a buylist or in an investment portfolio/fund. This process is the one that I have used and refined throughout my investment career and is the same one that you will find throughout the investment deep dives that I publish here. It is worth reading it as I want to bring you along to discover how I find those great businesses in the first place and which criteria I look at when investing.
How I will breakdown my investment cases for each company:
Business Description: For each company I will go into a detailed description of the business, its operating segments, the industry and the company’s competitive positioning.
Investment Case: Pretty self explanatory. I aim to give you a concise but complete explanation as to why this company is worth at least having on your radar. Just reading this should give you a good idea of the reasons to own the stock (but of course you should do your own due diligence before investing, this content is only for educational purposes).
Innovation: What truly differentiates the company’s products and services. This is important to dig into as innovation is often at the core of a company’s commercial success.
Value Chain: Understanding the structure of the value chain within which the company operates is critical as you want to invest in segments of the value chain that are capturing most of the value creation. We will also dive into the company’s suppliers and customers, looking for customer concentration or potential supply chain bottlenecks.
Growth Drivers: This is one of the most critical part of the investment case. We want to clearly identify which markets/trends/products are the real growth engines of the company, how visible and profitable is this revenue growth and what do we feel comfortable underwriting.
Risks & Threats: Its always important to highlight what could go wrong with our investment case. This section will highlight things that need to be monitored and that could potentially impact the company’s valuation.
Financial Robustness & Capital Allocation: The analysis of the financial structure aims to evaluate the financial solidity of the economic model and the company’s ability to execute the strategy (finance its growth: organic and/or inorganic). I dissect the company’s growth and margin development and outlook, its balance sheet structure, cash generation (if it is profitable) and importantly its capital allocation.
Outlook/Guidance: We dissect the targets that the company’s management has given the market. Here we look at short term (this year’s guidance) as well as long term targets and plans (companies often give medium term objectives, the progress of which is often critical to the stock’s performance).
Governance & Management Quality (and shareholder composition): This might be the most important and complicated aspect of a business to judge as an investor (and therefore an outsider). However, a management team can make or break a business and it is therefore extremely important to understand the governance structure (who controls the company, the board composition, the management’s background, track record and skillset) to truly find great businesses.
Valuation: We finish with an overview of the company’s valuation, mostly by putting the multiples that the company is currently trading at (what investors are paying for the stock’s future earnings) in the context of the historical/long term multiples as well as with our conviction on the outlook and earnings growth.
Disclaimer: The information provided on this Substack is for general informational and educational purposes only, and should not be construed as investment advice. Nothing produced here should be considered a recommendation to buy or sell any particular security.