Have you ever run a comparable company analysis?
If you have, then you know how empowering it can be to invest in a stock when you know
that compared to all of its closest peers it is significantly undervalued.
In this video, I’m gonna walk you through just briefly the 4-step process for conducting
a proper comprehensive company analysis…
Welcome back - if you’re already a subscriber, let me tell you: it’s good to be back.
If you’re new here: hey, my name is Stephen Spicer and it’s my goal to help you invest
smarter.
Over the last several months I’ve been creating a lot of content and resources for the stock
selection course that I’ll be launching over the next two-week window - and I have
sincerely missed interacting with you.
And it recently occurred to me, that I have all this course content over here, that I
could easily share some of it with you…
So, that’s what I’m going to do today, and you find it helpful and would like to
see more clips, please, take a second, let me know in the comments, and I’ll absolutely
get you more!
So far, the most raving feedback I’ve received from the beta students going through the course
regards my step-by-step walkthrough of the analysis process.
And the big standout is my breakdown of my go-to analysis methodology: the Comparable
Company Analysis.
So, I wanna share the overview of that with you today.
Without further adieu, let’s cut over to Stephen, inside the Empowered Stock Selector
course.
Stephen…
Now, this first analysis is one that I run almost every time.
I really can’t think of a time I didn’t.
It's pretty essential.
In order to value your company, you really should have something to compare it to.
And you can't just compare it to the market as a whole.
You can't even necessarily just compare it to its industry.
Ideally, you find companies that are very similar.
Of course, they need to be in the same sector and should be in the industry and they need
to be offering the same or a very similar product or service.
But your analysis is going to be even better if you can find companies serving a similar
demographic, utilizing a similar distribution channel, located in a similar or the same
region, with a similar market cap, and so on.
You get the idea.
Obviously, there will be differences, but the closer the better!
And if you can't find any... then you may not want to invest.
Yes, a company without good comps does create additional confusion, which breeds opportunity
(a quality we generally gravitate toward), but unless you have a unique knowledge and
insight about the company or its industry, you're going to be operating entirely in the
dark—which is never safe!
So, that's the first part of a Comparable Company Analysis: find comparable peers.
I'll show you how I do that in just a second.
The second part of this analysis is determining which valuation multiple you should use to
compare these companies—I'll usually use EV/EBITDA for capital-intensive industries
and EV/EBIT for most others (I explain the rationale behind those metrics in a short
video series that I'll link to below), but sometimes EV/Sales or P/BV or something else
makes more sense.
I'll walk you through determining that, as well.
Then, we'll need to validate the key fundamental metrics that we'll be comparing.
What I mean by that is we need to make sure we're comparing apples to apples here—for
example, we need to take out any one-time (non-recurring) expenses and/or income that
might be reflected in these numbers.
Otherwise, our results won't be reliable.
Finally, and maybe we're doing this as we validate the numbers, we need to pull all
the relevant information onto our worksheet.
The worksheet will calculate the important figures for us.
And at that point, we'll be able to answer the question: is the potential upside enough?
Does it meet your standards?
Most won't.
Great!
Get 'em outta here!
Who's next?!
It's that easy!
And if they do meet your standards, that's exciting.
Let's see if there's another valuation methodology we can use as well before moving on to assess
the floor.
So, I hope that conveys the general idea of what we're doing here.
Go ahead and pull up your workbook, check out the additional resource text below this
video, and let's get behind the computer and work through one of these together...
So, there you have it: the four essential steps when conducting a proper Comparable
Company Analysis.
(1) Find comparable peers (the closer the better!), (2) determine a relevant valuation
multiple, (3) validate the key fundamental metrics you’ll be using in your analysis,
and then (4) find the averages and see how they compare to your company in question.
When you take the time to do this right and discover some significant upside potential…
you’ll feel so much more confident when you go to invest.
It can be rather...
Empowering!
I hope that helps you on your journey to investing smarter, whether you’re interested in the
course or not.
If you are interested, check out InvestLikeSpicer.com to see what’s happening - as I record this
we have a launch coming up, but the cart will close for that in mid-December, and I honestly
do not know when we’ll be launching again.
Whether I’m able to continue to help you here or to provide you with a more enhanced
experience inside the course - either way - I’m looking forward to it!
I wish you all the best!
Take care!