Putting Stock Research Together

Good research is not one ratio, one filing, one chart, one news article, or one opinion.

It is a process of gathering, organizing, comparing, and updating evidence.

A stock screen narrows a large universe into a smaller research universe.

It does not complete the research. Everything after the screen is where the research actually happens.

Stock Sage's fundamental qualification rules require Positive EPS in at least 4 of the previous 5 years and Total Assets greater than Total Liabilities in each of the previous 5 years.

These are historical first-stage qualification rules: they define where research begins, not what it concludes.

The callout below lists what passing the Stock Sage qualification rules does not establish.

If the company appeared because it is trading near its own 52-week low, begin investigating why.

Do not assume the decline created an opportunity. Do not assume the decline proves the company is deteriorating.

Organize everything this course has taught into one structured research file.

The Complete Stock Research File below provides the framework.

As covered in Lesson 2, before interpreting financial data, understand:

• What the company sells
• Who buys it
• How it earns revenue
• Major segments
• Geographic exposure
• Major costs

Answer this question: how does this company make money?

If the answer cannot be explained clearly, more research may be needed.

Research:

• Products
• Services
• Segments
• Customers
• Geographies
• Recurring versus transactional revenue where disclosed

Research dependencies involving:

• Customers
• Suppliers
• Products
• Geographies
• Regulation
• Distribution
• Technology

As covered in Lesson 3, prioritize original and authoritative information where practical. Examples:

• SEC filings
• Company investor relations
• Earnings releases
• Official transcripts/materials
• Regulatory disclosures

Use secondary sources to supplement and challenge—not automatically replace—primary evidence.

For important conclusions, record:

• Claim
• Source
• Date
• Reporting period
• Supporting evidence
• Contradictory evidence
• Unresolved questions

As covered in Lesson 4, review the relevant sections of the 10-K:

• Business
• Risk Factors
• MD&A
• Financial Statements
• Notes
• Controls
• Exhibits where relevant

The callout below explains why the annual filing is necessary but not sufficient.

Study multiple years together, including:

• Revenue
• EPS
• Assets
• Liabilities
• Cash flow
• Margins
• Debt
• Share count

One year is a snapshot. Multiple years provide context.

Five years can reveal trends, inconsistency, cyclicality, and unusual periods that one year may hide.

Do not merely record whether EPS was positive. Investigate:

• Trend
• Volatility
• Unusual items
• Dilution
• Relationship to cash generation

Investigate:

• Assets
• Liabilities
• Cash
• Debt
• Liquidity
• Material changes

Compare:

• Net income
• Operating cash flow
• Capital expenditures
• Free cash flow where appropriate

Accounting earnings and cash generation answer different research questions.

Study:

• Gross margin
• Operating margin
• Net margin
• ROE where useful
• ROIC where useful

Do not create arbitrary universal thresholds.

Investigate:

• Debt trend
• Maturity structure
• Interest burden
• Liquidity
• Cash generation
• Refinancing requirements where disclosed

As covered in Lesson 5, buybacks should be compared with actual changes in diluted share count.

Share Count Change % = (Current Diluted Shares − Prior Diluted Shares) ÷ Prior Diluted Shares × 100

As covered in the Understanding Valuation course, valuation is a separate research question from business quality.

A fundamentally sound company can still trade at a demanding valuation.

Where reliable data is available, compare current valuation with the company's historical range.

Do not imply that valuation must return to a historical average.

P/E Ratio = Stock Price ÷ Earnings Per Share

P/E requires context involving:

• Earnings quality
• Growth
• Cyclicality
• Interest rates
• Business risk
• Historical valuation

As the Understanding Valuation course explains, possible explanations include:

• Declining earnings expectations
• Cyclical peak earnings
• Business deterioration
• Elevated risk
• Temporary market pessimism

Research is required to determine which explanation the evidence supports.

Possible explanations include expectations involving:

• Growth
• Profitability
• Competitive strength
• Capital efficiency

Those expectations may or may not materialize.

As covered in the 52-Week-Low Research course, a 52-week low is a price-location measurement, not a conclusion about value.

Ask: why is this fundamentally qualified company trading near its own 52-week low?

Investigate whether the decline appears related to:

• Company-specific developments
• Industry developments
• Macroeconomic conditions
• Valuation compression
• Combinations of factors

Do not force one explanation.

Compare what happened to:

• Stock price
• Revenue
• EPS
• Margins
• Cash flow
• Guidance

A falling stock price and a deteriorating business are not identical concepts.

Research:

• Duration
• Cause
• Financial effect
• Management response
• Subsequent evidence

Avoid prematurely labeling the problem temporary or permanent.

As covered in Lesson 5, investigate:

• Leadership
• Tenure
• Compensation
• Insider ownership
• Capital allocation
• Acquisitions
• Debt decisions
• Dividends
• Buybacks
• Dilution

Use the workflow below to track statements against subsequent reported results.

Changed circumstances must be considered; outcomes can differ from expectations for reasons outside management's control.

1. 1Management Statement
2. 2Expected Development
3. 3Subsequent Reported Result
4. 4Difference / Follow-Up

The Capital Allocation Review below organizes how management has used the company's resources.

Do not score management numerically; record what happened and what the evidence shows.

As covered in Lesson 6, investigate:

• Competitors
• Market share
• Pricing power
• Margins
• Switching costs
• Scale
• Distribution
• Network effects
• Intellectual property
• Innovation

The callout below states the standard a competitive-advantage claim must meet.

Research threats involving:

• Technology
• Competitors
• Pricing
• Regulation
• Changing customer preferences
• New distribution
• Commoditization

As covered in Lesson 7, separate:

• Historical growth
• Management guidance
• Analyst estimates
• Market expectations
• Researcher interpretation

The callout below states a separation that must survive every stage of the research file.

Research possible growth from:

• Pricing
• Volume
• New customers
• Existing customers
• Products
• Geography
• Acquisitions
• Market growth
• Market-share gains

Compare growth with:

• Margins
• Operating cash flow
• Free cash flow
• Debt
• Share issuance
• Per-share economics

As covered in Lesson 8, ask: what story is currently being told about this company?

Then convert the story into testable claims.

The Research Conclusion Evidence Test below forces each conclusion to show what is documented, what is assumed, what contradicts it, and what remains unknown.

Do not research only to prove your original idea.

If the evidence contradicts the original thesis, record it.

The callout below states how uncertainty belongs in a research file.

Examples of legitimate unresolved questions:

• Why did margins decline?
• Will a major customer renew?
• How much acquired growth is organic after integration?
• Will debt need refinancing?
• Is recent weakness temporary?
• Is pricing power weakening?

These are examples of research questions, not conclusions about any company.

Organize the finished research under the twelve headings below.

A research summary organizes evidence. It does not guarantee:

• Future earnings
• Future valuation
• Future stock price
• Investment returns

The Ongoing Research Monitoring Plan below keeps the research file current after the initial work is complete.

Update the research when new evidence changes:

• Financial condition
• Management
• Competitive position
• Growth expectations
• Valuation
• Original explanation for the price decline

Research remains useful after an investor decides not to act, continues watching a company, or later revisits it.

The objective is disciplined understanding, not forcing a transaction.

The workflow below combines everything in this course into one repeatable process, followed by the complete checklist and closing statement.

1. 1Apply defined fundamental qualification rules.
2. 2Identify why the company entered the research universe.
3. 3Understand the business model.
4. 4Establish reliable sources.
5. 5Review the 10-K and subsequent disclosures.
6. 6Analyze the five-year financial record.
7. 7Investigate valuation.
8. 8Investigate the 52-week-low context.
9. 9Research management and capital allocation.
10. 10Research competitive position.
11. 11Research growth and future expectations.
12. 12Separate facts, forecasts, opinions, and narratives.
13. 13Search for contradictory evidence.
14. 14Record unresolved questions.
15. 15Write the research summary.
16. 16Monitor new evidence over time.