Guide in Analyzing Company
for Stock Investing

Analyzing Company
Will Help you Discover the True Potential

Summarized Overview

You will also learn about business lifecycle, company's business model and which stocks to avoid for long term stock investing.

Reason to Analyze Stocks Qualitatively

By now, you are most likely have

• List of stocks to be purchased,
• Discovered the intrinsic value for each of them, and
• Finalised the fair value for every single stocks you are about to buy.

All the above is good practices indeed. It is all you need to get rid of junk stocks in the stock market. However, to pick a very good business, it needs a bit more than that. You need to be familiar with what the companies are doing.

Behind every single stock is a normal company that is running an ordinary business. They have customers to think about, suppliers (or contractors) to take care of and partners to work with to ensure businesses running smoothly and profitably. And financial ratios just can't reveal qualitative value of each stocks. That's why, understanding businesses is the thing you should not forget before betting any money into it.

Guide in Analyzing Company

Guide in Analyzing Company 1: Understand its Business Model

You must know how company makes money and where the money came from. Some companies have consistent stream of income such as rental or tariff and some just raked in profits by having ‘once-off’ gain like selling products.

While some property companies make consistent income from its rental, others are just selling the properties itself. For both business models, they might be targetting different markets as well.


They might be selling properties to high-end market (e.g. bungalows) or mid-end market (e.g. linked house). Or, they might be focusing on commercial properties (e.g. shoplots) rather than conventional housing.

Guide in Analyzing Company 2: Identify its Competitive Edge

What is so special about its product than the others? Is it a value-added product or just a regular products that is price sensitive? If you is one of their customer, are you comfortable buying their products? Are you confident with their after sales support?

This sort of questions makes your research much more easier.

Companies that have competitive advantage over others can be experiencing sustainable growth. It can be either its products is very high in quality, worth the price, suit niche market or excellent after sales service.

Guide in Analyzing Company 3: Recognize its Business Lifecycle

All the big corporation is not happen in overnight. It happened after undergoing few cycles that made it where it is now. Here is the regular business lifecylce:

• Developing
  This is where the companies just started doing their businesses. They need a lot of cash to fund its operation. In the same time, their products or services are not proven yet and need to convince market about their stuff. The risk is high if you invest at this stage but if the company.
• Growing
  At this stage, the company normally experiencing strong growth in sales and profits. Market acknowledge their products and have trust in them. Their products normally grew beyond its industry average as a prove of their stellar business performance. I love this kind of stock as it offers huge potential return.
• Maturing
  As the company grow larger, it may come to a saturated point. This is where their business performance is more or less the average industry and economy performance. Though sometimes it grew to a better financial position, its growth is not as exciting as growth stock. The risk might be lower investing in this type of stock but the potential return is usually lower as well.
• Declining
  At declining stage, companies unable to grow as fast as the economy or industry growth rate. Consumer lost confidence in buying their products and their market share slowly eaten by its competitor. You better not invest in this kind of stock as it offer the lowest possible return with the highest potential risks.

This is where you need to do some deep research. In fact, by understanding its business model, you may forecast its future growth on whether the existing market serves well or not. For example, high-end non-commercial propertiesmay be less sensitive to price than mid to lower-end housing.

Guide in Analyzing Company 4: Acknowledge its Industry Nature

Companies have its own business cycle. This especially true to cyclical stocks. Businesses like housing properties, airlines or automobiles are more susceptible to the overall economy.

When the economy is riding the bull market, customers tend to spend more on luxuries thingy like cars, housing and holidays to overseas. But when economy experience slight downturn, people are more likely to avoid spending on the luxury things.
Just imagine, when more employees been laid off and higher cost of living (as effect of inflationary pressures), buying new homes or brand new cars are most probably the last things in their mind. Struggling their lives through the turbulence time thought them how important cash saving is.If you are investing for long term, try to avoid this type of stock. But, it is ok to trade these stocks.

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Additional Reading

Successful Long Term Stock Investing Strategy
Long term stock investing strategy is what Warren Buffet is doing. So what it takes to be successful in long term stock investing?

Stock Market Cycle - Bubble in Bull Markets
In a complete stock market cycle, fundamental investors tend to look at bull markets as a bubble. When the bubble is inflated, bull markets tend to slow down a little.

Discover A Profitable Growth Stock
Growth stock is everyone dream. But owning one is not that easy. Find out what it takes to discover one here.

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