Stock picking is all about identifying the pros and cons of a business proposition. A case study best illustrates this; in this instance it is a hi-tech company, under the Technology Hardware & Equipment sector. Its primary business is making semiconductor chips for mobile phones.
Performing a SWOT analysis ensures the investment really is as good as it sounds. Remember that investor relations are geared to make the company sound wonderful – but there is often more than meets the eye.
Below is an analysis of the company. These are some typical factors to consider when stock picking.
Strengths
- A strong supply chain for obtaining raw component materials
- High operational gearing, where costs are fixed as sales grow
Weaknesses
- Considerable bank debt and interest charges
- Deferred share payments will dilute shareholdings
Opportunities
- The mobile phone market is growing rapidly
- International expansion will yield greater sales
Threats
- Fierce competition in the industry
- Foreign sales bring risk of currency exchange losses
This sort of detail is available on the company’s website, or in Regulatory News Service (RNS) announcements. Visit Investegate or London Stock Exchange for news on LSE and AIM quoted stocks.
The most important news items will be listed as:
- Interim Results: first six months of the company’s financial year
- Final Results: the full financial year
- Trading Statements: issued shortly before results are published
- Corporate Updates: general operational or corporate changes
- Acquisitions: bolt-on businesses and mergers
Management
The board of directors and top tier management is often critical to a company’s success. It is not difficult to research the board’s background on the Internet, so be sure to spend a few minutes reading up. Key points to look for include:
- A strong record of running successful businesses
- Experience with public companies
- A history within the sector
Usually, the Chief Executive Officer (CEO) and/or the Executive Chairman head up the company. There will also be a Finance Director who handles the accounts and other corporate affairs. There may be other operational directors, depending on the nature of the business.
A board also comprises a handful of highly experienced Non-Executive Directors who may sit on the boards of multiple companies. Their job is to share their extensive advice and knowledge with the Executive Directors.
It is unusual for company directors to be very young, as they will need considerable experience and contacts to help the business thrive.
This article is part of a series. To see more, visit:
Interpreting Financial Accounts
How To Create Stock Valuations
 |
