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The strongest fundamental analysis
This is a mind map about stock fundamental analysis, including finding clues, in-depth analysis, tracking decisions, clever use of resources for investment, etc.
Edited at 2023-11-09 17:13:21
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The Strongest Fundamental Analysis-Yi Research
discover clues
How to choose good stocks
Financial Indicators/Stock Selection Models
news
work and life experience
Brokerage Research Report
Recommendations from experts and friends
These are all clues! !
In-depth analysis
Industry space analysis
Is the industry space big?
Is the industry booming?
Supply and demand
Policy Support
Technological development
Company competitiveness analysis
Is the company’s moat deep?
Brand and product premium
intangible assets
technology R & D
scale effect
marketing network
Is the company’s management team excellent?
The company’s development prospects are its biggest fundamentals Stock price = Earnings per share X Price-to-earnings ratio Davis double tap
Determine industry space and trends
Choice of two types of companies
Industry space = current market capacity and future growth trend
How to understand the industry space of the company's industry
Baidu search
prospectus
Business and Technology: Understand the industry in which the company operates and its core competitiveness
financial data: Analyze the company's performance based on financial data
Investment of raised funds Determine the company’s future development strategy (be wary of scrapping projects)
summary
inferred: Industry space? (scale) What stage is the industry at?
Industry experts
Brokerage Report
Focus on what’s most worth reading: in-depth industry analysis
Professional website (information)
Check it out
Snowball, Zhihu, Wall Street News
Professional industry information website
Analyze the company's core competitiveness Unless the industry is completely disrupted, companies from scratch can survive
The company’s core competitiveness (moat)
Be wary of eroded moats
Technological changes: Kodak is replaced by digital technology, WeChat challenges telecom operators
Industry changes: JD.com and other e-commerce companies subvert Suning’s model
Suicidal growth: blind expansion, Lao Ganma
Horizontal comparative analysis of the company's core competitiveness: prospectus, brokerage report, competitor report
market share
Main business income growth rate
Gross profit margin
net profit margin
Roe
Identify risk factors
Substitution risks of new models and new technologies: Nokia, Suning Cloud Commerce
Is there a major reversal in the supply and demand relationship in the industrial chain: the seesaw between the coal industry and the thermal power industry
Dimensionality reduction attacks from giants: BAT vs. Wangsu Technology
Risks of financial fraud: LeTV, agriculture, forestry, animal husbandry and fishery industries
Corporate Governance Risk: Suntech Power
Risk factors also affect valuations
Financial analysis verification
The company's core competitiveness and development space will definitely be reflected in financial indicators
A company that boasts and boasts to the sky will definitely be exposed after financial analysis.
Include
Growth analysis
Profitability Analysis
Operational efficiency analysis
Debt ratio analysis
Financial demining
Financial Statement Analysis
The purpose of financial statement analysis: Use financial statement analysis (quantitative) to verify the company's development prospects (qualitative)
Evaluate business performance
Verify the company's core competitiveness and sustainable development capabilities
Identify financial fraud and prevent fraud
The role of financial reporting
Treasure map: Financial reports are the “treasure map” for discovering good companies
Demon Mirror: Financial reports are the “demon mirror” for identifying financial fraud
Three tables of financial reports and others
Balance Sheet: Photos, a time-point record of assets and liabilities, are the foundation
Basic framework of balance sheet
Where corporate funds are used: current assets, long-term assets (non-current assets)
Where do corporate funds come from: current liabilities, long-term liabilities (non-current liabilities), owners’ equity (net assets)
Income statement (profit and loss statement): Video, a fragmentary record of income and expenditure, is a face
The basic relationship between profits: profit or loss
income
Cost structure
One big cost: operating costs
Three major expenses: sales, management, and finance
Excessive taxes and miscellaneous taxes: business tax and surcharges, income tax
Cash flow statement: video, footage of cash, days
The essence of the cash flow statement is the classification of net cash flow cash basis
cash flow from operating activities
Cash flow from investing activities
cash flow from financing activities
Business situation discussion (management discussion)
Industry development trends
Company business strategy and plan
Summarize the past and look forward to the future
Notes to financial statements: The devil is in the details Notes to Consolidated Financial Statement Items
balance sheet
Aging structure of accounts receivable (time, dispersion)
The specific composition of the inventory
What exactly are other current assets?
income statement
Main business income structure
Major customers and suppliers
The specific composition of each expense
Focus: Subjects with large amounts Subjects that change a lot Driving account (inventory of profit real estate)
Financial indicator analysis (four dimensions) to evaluate company quality
Growth analysis
Main business income growth rate
operating profit growth rate
Net profit (attributable to parent company) growth rate
Average growth of A-share companies <5%, low growth 5%~10%, medium growth ＞10%, high growth
Pay attention to the impact of backdoor mergers and acquisitions and restore them
Distortion caused by non-recurring gains and losses, maintaining consistency
Profitability Analysis
Gross profit margin
Average gross profit margin of A-share companies <15%, low gross profit margin 15%~30%, medium level ＞30%, high gross profit margin
operating profit margin
Average operating profit margin of A-share companies <5%, low profit margin 5%~15%, medium level ＞10%, high profit margin
Roe
Average ROE of A-share companies <5%, low ROE 5%~10%, medium level ＞10%, high ROE
Dongfanghong Asset Management focuses on: ROE and net operating cash flow
The core is to find the reason behind the data: business model? Competitiveness? Cost control?
Operational efficiency analysis
expense ratio
overhead rate
Selling expense ratio
Turnover
Inventory turnover
Accounts receivable turnover ratio
Fixed asset turnover rate
total asset turnover ratio
Debt level analysis
Assets and liabilities
Interest-bearing debt ratio
Interest-free liabilities: wages payable, accounts payable, advances from customers
How to examine financial indicators
Dynamic look: compare with history (trend analysis method)
Analyze the logic behind trends
Pay attention to eliminating the three major influencing factors
并购的影响
高估值公司流行“买利润”
并购带来的高增长要剔除
IPO新政下，并购带来成长的可能性大幅度降低
重大资产重组的影响
财务操纵的影响
Year-on-year (strong seasonality) & month-on-month (more timely reflection)
Looking horizontally: comparing with peers (analogy analysis method)
Analyze the drivers of differences
Precautions
可比公司的选择非常重要
可比公司的选择标准
行业：依据公司所处的行业、细分行业进行初选
产品结构：公司之间产品结构越接近，可比性越高
商业模式、所处区域、目标客户
Identify company business strategies
summary: Judging the company's development trend from the changing trends of financial indicators Determine the company's competitiveness based on peer comparison of financial indicators Understand the company's strategy and operations through financial indicators
How to avoid "black swans"
The difference between earnings management and financial fraud
manipulate
Earnings management: rational use of rules and systems
fake
Report whitewashing
management fraud
accounting fraud
beyond rules and regulations
Motives for financial manipulation or fraud
Pre-IPO: In order to make the company’s various financial data meet the listing threshold
After listing: meet the conditions for financing and financing, obtain bank loans; maintain stock price or cooperate with speculation; avoid being ST or seeking to be decapitated
Other purposes: tax avoidance, profit stability
Common forms of financial manipulation and fraud
Profit = revenue - cost
Recognize revenue in advance
Reasonable revenue recognition method: percentage of completion, or final recognition based on the prudence principle
Items sold with returns: based on return rate
Inflated income
Inflated through related parties
"Consequences" and "Signs" Gross profit margin will be very high Generally, it will lead to an increase in accounts receivable for the current period. Poor operating cash flow performance The concentration of the top five customers suddenly increased
Delayed recognition of costs
Projects under construction have been delayed in being transferred to fixed assets
Capitalization of R&D expenses
capitalization rate
Extend the amortization period
Long-term straight-line amortization VS accelerated amortization
Inflated costs
extracorporeal payment
Inventory fraud - agriculture, forestry, animal husbandry and fishery (inventories are difficult to inventory and are very scattered upstream and downstream)
Pay close attention to virtual asset accounts on the balance sheet (goodwill, intangible assets, development expenses, etc.) Pay special attention to anomalies compared to similar companies: The long-term construction project is very large Inventory has grown significantly and is difficult to count Various “virtual assets” remain at high levels
financial bath
New management takes office
Losses are inevitable
cash flow fraud
Convert cash inflows from financing (investment) activities into cash inflows from operating activities
Convert cash outflows from operating activities into investments or cash outflows from investing activities
Using the acquisition or disposal of businesses to exaggerate cash flow from operating activities
Inflating cash flow from operating activities through unsustainable operations
Other signs of fraud: Cash assets are high and interest-bearing liabilities are high Interest income from cash assets is extremely low Cash flow and profit mismatch
Trend analysis and analogy analysis are important methods for discovering financial fraud
Other important signals: Financial director resigns Change accounting firm The accounting firm issued a "reserved opinion" or even "declined to express an opinion"
Valuation analysis
understanding of valuation
The more speculative the market is, the more important valuation is
Valuation is a "science and art", but it is a "science" first
Valuation is important, but don’t be superstitious about valuation
Valuation is an “art of learning to let go”
Why look at valuation
Good stocks = good companies with reasonable valuations
Return on investment = (dividend price change) / purchase price
The more reasonable the buying valuation, the more "affordable" it is.
Valuation Perspective
original cost method
replacement cost valuation
reasonable valuation
The more reasonable the purchase price, the higher the future investment return will be.
The more reasonable the purchase price, the higher the ability to resist risks.
Include
Absolute valuation: DCF (discounted cash flow)
What should be a reasonable discount rate? The five-year government bond yield is 3%, and the corresponding reasonable price-earnings ratio is
relative valuation
Select comparable companies
Be comparable
Be sufficiently representative
Select and calculate comparison metrics
PE-Price-to-Earning Ratio (Market Capitalization/Net Profit): Common Indicators
PS-Price to Sales Ratio (Market Value/Operating Revenue): E-commerce Platform
PB-Price to Book Ratio (Market Capitalization/Net Assets): Banking Stocks
Set individual weights based on industry valuation ranges
Single industry average multiple
Take the median
Holistic method: total market capitalization/total net profit
PE*Company EPS*60% PB*Company BPS*20% PS*Company SPS*20%
Adjust differences based on company quality
Good growth potential: valuation can be increased appropriately
Good profit stability: valuation can be increased appropriately
Absolute valuation and relative valuation
Absolute Valuation: Determining the “Margin of Safety”
Relative Valuation: Solving "Individual Stock Selection"
Different market environments, different valuation methods
Bull market: everyone likes stories and everyone looks at relative valuations
Bear market: Everyone likes certain performance and everyone looks at absolute valuation
Factors affecting valuation
The company's growth
High company growth does not mean high return on investment
After the market recognizes a company as a high-growth enterprise, it will maintain the company's trading price at a higher valuation level, making the company not that cheap.
Most growth companies do not pay dividends. If reinvestment of dividends is considered and the investment cycle is long enough, the return on investment of value-oriented companies is not bad.
Profitability stability
Internal logic: stable profits → return rate required by investors (low discount rate) → high valuation
market interest rate level
Rising interest rates lower valuations: interest rates ↑ → corporate financing costs & stock opportunity costs (discount rate required by investors) ↑ → overall valuation ↓
Valuation Practice
Mature company valuation
Mature companies: Why cheap is often cheaper
Valuation methods for mature companies
Stable operation Products and technologies are mature Market share stable Cash flow is predictable
Financially sound Be cautious about foreign investment Dividends distributed mainly in cash Dividend payout ratio stable
Mature management A governance model dominated by professional managers Mature and stable management
It is more suitable to use PE valuation and DCF valuation
Growth company valuation
Growth stocks are a relatively vague concept: based on industry classification? Classification based on growth rate? (5%/10%)
The biggest confusion in growth stock investment: static valuation is too expensive
Introducing PEG valuation
Calculation method: PE/G (G: compound growth rate of recurring profits and losses in the next three years)
Generally speaking: the lower the PE/G, the more attractive the valuation is
The stock selection criteria for professional growth stock investors is that PE/G is close to 1
How to predict future growth rates?
Brokerage research reports are a helpful tool
Most good companies have research reports within 6 months (the reports cannot be too few or too long) and profit forecasts (you can refer to them)
Davis Double Click and Double Kill: Earnings per share ↑ [Profitability]
Special Company Valuation
Diversified Company Valuation
Different businesses should be valued separately, and different businesses should not be mixed together for valuation.
financial company valuation
Price-to-book ratio (PB) = market capitalization / net assets
Cyclical Company Valuation
Look for normalized data—average profitability over the entire cycle: normalized revenue X normalized net profit margin X reasonable valuation level (multiple) of the sector
Real estate company valuation
RNAV (revalued net asset value - how much the company's existing assets are worth when sold at the latest market price), RNAV's reasonable valuation multiple: 0.8-1.2
Loss-making company valuation
According to liquidation value (sale value)
Integration of different valuation methods
Track decisions
Take profit and stop loss strategy
Tracking and decision-making
Long-term holding ≠ Holding stocks to death
Follow closely ≠ watch the market every day
What to track
Announcements, Information, Research Reports
Factors driving share price fluctuations
funds?
Long term: the company’s core competitiveness and profitable growth
Short to medium term: Expected deviations from key drivers
Key Drivers (Signals): Significant, sustained impact on stock fundamentals (outperform/underperform the market)
Any direct or indirect factors that have an important impact on revenue, costs, valuation (price-to-earnings ratio)
Different industries, different concerns
Internet or start-up
E-commerce: number of active customers, GMV
APP: number of registered users, number of active users
Chain industry: number of stores, single store square footage
Clothing: In Stock
Liquor: advance payment
Focus on important customers and important suppliers. Generally speaking: the higher the concentration, the greater the risk.
Pay attention to competitor dynamics: dimensionality reduction attacks by direct competitors and giants
Pay attention to government policies: they have a huge impact and can even determine the fate of a company
Transformed enterprises (or diversified enterprises): In addition to paying attention to the progress of mature products, they must also pay attention to the development of new industries (determining development space and valuation level)
Grasp the big and let go of the small, catch the new and let go of the old
Pay attention to the sales volume and price of main products
Pay attention to the production capacity expansion of enterprises
Pay attention to price changes of major costs
Pay attention to the dynamics of major customers and major suppliers
Pay attention to what your main competitors are doing
Pay attention to changes in government policies
Pay attention to new business development trends
Non-critical drivers (noise): have only a slight or short-lived impact on stock fundamentals X
Within expectations (has been fully expected by the market, and has been fully or even overreacted by the stock price) VS Unexpected
Second level thinking "The most important thing in investing"
How to understand consensus expectations?
View specialized databases
Read brokerage research reports
Communicate with listed companies
Communicate with peers
View Internet information
Look at stock price performance
Judgment of consistent expectations is a process of “science and art”
What to decide
Position, take profit and stop loss, black swan
Position strategy
There is no “cure-all” position control strategy: Logical assumptions & strategies and market adaptability
Take profit and stop loss strategy
Similar to the position strategy, there is no perfect answer that "can cure all diseases"
Always remember, take profit or stop loss has nothing to do with your cost! The core lies in whether the fundamentals have changed? & Is the valuation adequate?
How to deal with "black swan"
A black swan is a negative expected difference
black swan appears
Dealing with "Black Swans"
(Smart use of resources for investment)
The most important resource: Brokerage Research (Sell-side Research)
Made for institutional clients: institutional investors such as public funds, private equity funds, insurance companies, etc.
Provide investment decision-making reference: provide customers with logic, information, data, and have customers make investment decisions
Investment research that charges high fees: Most sell-side research labs charge fees in the form of trading commissions
For individual investors, the most important thing is research reports
In-depth understanding of the industry
Key drivers
finance prediction
Evaluate management more accurately and objectively
The value of sell-side research
1. Understand the industry space and company competitiveness: Analysts' in-depth reports and first reports often provide detailed analysis of listed companies' industry space, company business models, company competitiveness, etc.
2. Understand the key driving factors that affect stock prices There are thousands of factors that affect stock prices. Which one is the most important? Reading sell-side research reports is the fastest way to find out the key driving factors (signal or noise)
3. Identify consistent expectations through reports The difference in expectations determines the stock price trend. What is a consensus expectation (already reflected in the stock price, if a certain point of view and logic is mentioned in multiple reports). On the contrary, "the inconsistency between this report and the market opinion is..." should be paid attention to.
4. Help (not replace) you in valuation You can refer to the profit forecast, but you must do the valuation yourself! Financial forecast: It is difficult for you to make a more detailed and professional forecast than a brokerage researcher, but you should pay attention to the reasonableness of its assumptions. Valuation: Brokerage analysts are often not objective enough and must have their own valuation system
Identifying “subtext” in research reports
Objectivity and rationality in sell-side research is a challenge: The impact of market sentiment and interest arrangements (brokers vs. companies)
Increase target price as share price rises
The stock price has reached the target price, but it still has a "buy" rating
When adjusting EPS, we need to analyze whether the logic is sufficient.
Once a popular stock, research reports have disappeared
Either it's too expensive, or the fundamentals have reversed
Reports worthy of attention
First Coverage Report/In-Depth Report
Reports that change earnings forecasts, ratings
In-depth research reports on unpopular stocks
Pay attention to the "risk warning" in the research report
About core drivers
Be a smart investor
Magic weapon for smart investors
Know your circle of competence
Know what you know & don’t know what you know Total 1%
Have common sense and logical ability
common sense
Logic: Determine the feasibility of the company's business model and the company's development prospects through logical inference
Avoid investment misunderstandings
The investment behavior of "leeks"
Overcome human weaknesses
Greed vs. Fear: The Investor Exploitation Cycle
Build your own investment framework
Circle of competence & market environment & regulatory environment
Understand market development trends and strive to match your "circle of competence" with market trends
some simple revelations
Investment is the pursuit of a replicable path to success with a high probability, and the same is true in life.
Industry space and company competitiveness determine valuation
The potential risks are high and the valuation needs to be discounted; Potential risk is low, valuation can be improved