Company Research and Investing
Contents
This article gives a basic idea of some steps that you might take to research a company. Many sites on the web will help you in your quest for information, and this article gives a few of them. You might look for the following.
5 Tips to Research Before Investing in a Company
#1 Earnings Multiple
What multiple of earnings is the company trading at versus other companies in the industry? The site http://www.stocksmart.com does this comparison reasonably well, and they base it on forward earnings instead of historical earnings, which is also good.
#2 Current Stock Price
Is the stock near a high or low, and how has it done recently. This is usually considered technical analysis. More sophisticated (or at least more complicated) studies can also be performed. There are several sites that will give you historical graphs; one is Yahoo. http://biz.yahoo.com/r/
#3 Industry Comparisons
When compared with other companies in the industry, how much times the book value or times sales is the company trading? For this information, the site http://www.marketguide.com is a good place to start.
#4 Company Offerings
Does the company have good products, good management, good future prospects? Are they being sued? Do they have patents? What’s the competition like? Do they have long term contracts established? Is their brand name recognized? Depending on the industry, some or all of these questions may be relevant. There isn’t a simple web site for this information, of course. The Hoover’s profiles have some limited information to at least let you get a feel for the basics of the company. And the SEC has lots of information in their Edgar databank.
#5 Management
Management. Does the company have competent people running it? The backgrounds of the directors can be found in proxy statements (14As) in the Edgar database. Note that proxies are written by the companies, though. Another thing I would suggest looking at is the compensation structure of the CEO and other top management. Don’t worry so much about the raw figure of how they are paid — instead, look to see how that compensation is structured. If the management gets a big base but bonuses are a small portion, look carefully at the company. For some industries, like electric utilities, this is OK, because the management isn’t going to make a huge difference (utilities are highly regulated, and thus the management is prevented from making a lot of decisions). However, in a high tech industry, or many other industries, watch your step if the mgmt. gets a big base and the bonus is insignificant. This means that they won’t be any better off financially if the company makes a lot of profits vs. no profits (unless, of course, they own a lot of stock). This information is all in the proxies at the SEC. Also check to see if the company has a shareholder rights plan, because if they do, the management likely doesn’t give a damn about shareholder rights, but rather cares about their own jobs. (These plans are commonly used to defend against unfriendly takeovers and therefore provide a safety blanket for management.)
These suggestions should get you started. Also check the article elsewhere in this FAQ on free information sources for more free information sources.
Article Credits:
Last-Revised: 3 Jun 1997
Contributed-By: George Regnery