What are the things we should check before buying a company during fundamental analysis?
Useful information for all beginners and stock pickers 👇
1)Industry Check
👉Industry Structure
👉Size of Global Industry
👉Size of Domestic Industry
👉Penetration level
👉Industry CAGR(%)
👉Tailwinds present or not
👉Government Policies impact
2)Company Analysis(Operations)
👉Main Products/Services
👉Distribution Network
👉Manufacturing Capabilities
👉Revenue bifurcation on products
👉Logistics and Supply Chain Management
👉Subsidiary Operation Analysis
👉Research and Development Facilities
👉Raw material Management
3)Company Analysis(Financials)
👉Debt/Equity<1
👉Sales Growth>15%
👉Profit Growth>15%
👉High Operating margin
👉Payable>Receivable days
👉CFO>PAT
👉SSGR>SALES Growth
👉No share dilution
👉High ROE
👉Current Ratio>1
👉Less working capital required
👉Useful Capex
👉Dividend High
4)Management Check
👉Promoter History
👉Promoter Successor planning
👉Merger and Acquisitions
👉Promoter Holding>50%
👉Share Pledged %=0
👉Promoter Capital Allocation
👉Skin in the game
👉Words and Action must match
👉Salary drawn by CEO
👉Transparency
👉Good capital Allocator
5)Moats(If any)
👉Entry Barrier
👉Strong R&D with huge patents
👉Switching cost
👉Profit pool shared by few players
👉Protected from government
👉Supply chain disruption
👉Aspirational Brand
👉Monopoly in niche industry
👉Competitor growth rate slow
👉Customer advances
6)Research on recent activities
👉Recent Capex
👉Quarter Result
👉Concall Transcripts
👉Management Interviews
👉Annual Report
👉Investor Presentation
👉Acquisitions or Demerger
👉Research reports
👉Rating upgrades
👉New product/service Launch
👉FI/DI Positions change
7)Valuations
This is different for different people so we gonna take an expensive scenarios in general
When not to take?
👉P/E ratio>60 with earnings decreasing
👉PEG>2
👉MarketCap/Sales>15
👉EV/EBIDTA>10
👉P/B>6
8)Risks Associated
👉Industry Structure change
👉Raw material prices
👉High dependence on few customers
👉Promoter change or death
👉Debt Increasing
👉Max Capacity utilization
👉Competition increasing
👉Government Intervention
👉Margin decreasing
👉Technology change
9)Conclusion
We can use all these parameters to check whether the company can grow from here for at least 3-4 years or not. Good companies always reward shareholders in long term but we should also keep in mind the risk associated when industry structure changes and exits thereby
10)Points to be noted
All the checkpoints and ratios I have used are generic and my personal view it can differ for others who have different styles or framework
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