A Framework for Fundamental Analysis
Stocks have sold off, drastically. When people say "invest in fundamentally strong companies", what does that mean?
*Note* This guide was too long for a traditional email. The full version will be on the SubStack website! If you’re accessing this through Twitter, you won’t have a problem.
Estimated time to read: 20 minutes
Stocks have sold off massively, especially in growth land. There are companies trading at a PEG less than one with strong balance sheets and years of potential growth ahead of them, with their given market opportunity. What’s more important is that only 28% of stocks are currently trading above their 200 day moving average. This tells us there’s major weakness in the the market as a whole and it’s becoming more likely the broader indices may soon correct. This is dependent on inflation data and economic data this week. Regardless, there is opportunity and growing opportunity because of market sentiment.
The purpose of this guide is to provide insight to BluSuit’s thought process and strategy for fundamental analysis. This is arguably one of the more informative and educational publications I will post. The reason why it’s so important, it’ll be useful for all levels of investors. The beginning investor will certainly learn something fundamentally better to stock picking and the experienced investor could bench mark their strategy/process against ours. I personally love learning about someone else’s process and how they think about things. When you’re finished, make sure to let me know your thoughts and feedback.
I will cover each topic (below in contents) by providing context about why it’s important and provide real world example. Teach a man to fish, he’ll eat for a life time, right? I’m happy you guys follow for some of my stock ideas (giving out fish) but I also love to provide intangible insight that all investors can apply. This guide is geared to teaching you how to fish (invest), if you’re interested in learning more about that.
Contents:
Introduction
Revenue & Earnings (Income Statement)
Balance Sheet
Cash Flow Statement
Business Model, Total Addressable Market, Competition and Competitive Moat
Conclusion
The best thing about this guide is that it can be referenced back to.
BluSuit’s Fundamental Analysis Guide
Stock picking is a process, skill and a strategy. But, I am certain that it is 80% mindset and 20% skill. The mindset portion to this strategy is why I post more about “perspective”, market scenarios, and portfolio strategy. With the right mindset you’re able to appropriately apply your hard skills and put them to work at the right time. There is more to this especially when we think or talk about market cycles, interest rates, or technical strategy. More or less, this is a broad subject but this publication will show BluSuit’s process to “vetting out” stocks and picking great growth companies. It helps answer the question, during crash’s and corrections, “will this stock price recover?” Make no mistake, excellent businesses do recover but they must attract the “value investors”. Once growth becomes “value”, it attracts the long term, buy and hold, type of investors that are so important to a stocks performance long term.
Everything goes down during crash’s and corrections, you don’t necessarily have technicals to confirm your thinking/hypothesis.
Fundamental Analysis - The Process
Introduction:
Much of this type of investing style is similar to Peter Lynch. Now, I am not necessarily saying, “I’m the next Peter Lynch” because I’m not, he’s inspirational and a legend lol. However, I am saying it’s all based on 2 factors: 1.) Revenue growth, & 2.) Earnings Growth. Stocks rarely move if they’re not growing revenue or look like they may never reach profitability.
Think about it like this; the stock market is a market of stocks. Stocks are nothing more than corporate equities. Corporate equities essentially means that it’s a tiny piece of a business. You’re a business owner when you own stocks. But, you don’t run anything, you have other people to use your capital and make you money. Your job is to allocate capital into the best businesses that will passively grow your wealth for you.
Contrary to the efficient market hypothesis, the market will often miss price stocks based on irrational excitement or irrational pessimism. This is where fundamental analysis comes in, it allows you to see opportunities in the market based on sector rotations and market cycles. The stock price in the long run is tied to long term business performance. This business performance long term is always subject to change. In fact, a majority of businesses don’t actually make it. The goal here is to tilt the odds in your favor by picking stocks with unique qualities with the following criteria.
This article will be exclusively for BluSuit members. Upon joining, you also have access to our Discord Group and all archived and future exclusive content. I encourage you to join!
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