Stock Pitch
A guide on how to approach one of Wall Street’s most ubiquitous assignments: the stock pitch.
What is a Stock Pitch?
Whether you’re involved in a finance club at your university or applying for a position at a hedge fund, individuals pursuing a career in finance have all more than likely come across the illustrious stock pitch.
A stock pitch, simply put, is a presentation or paper documenting your thesis as to whether a company is overvalued or undervalued. Supporting evidence is used to tell a narrative and ultimately guide the audience towards your investment recommendation to buy or short a stock.
Let’s look into the steps of building a successful stock pitch.
Before Putting Pen to Paper: Building a Credible Investment Thesis
Generate Ideas Through Research
An important first step in the process is doing the underlying research. Find an industry you are interested in or one that you think has structural tailwinds, and narrow in by screening for certain criteria (i.e. geography, revenue, market cap, etc.).
Once you have a more targeted list, look through industry primers, news publications, research reports, company reports, and other available resources on the main companies in the industry.
What to look for:
- Competitors with an angle of differentiation.
- Catalysts that seem to be overlooked.
- Strong underlying business fundamentals that make for a clear and compelling argument.
Unless you have a strong background in the space, try to avoid companies in industries like Oil & Gas or Financial Institutions that have unique approaches to valuation, as this will create unnecessary complications in building out your analysis.
Determine an Investment Thesis
Once you have a target company in mind, it's important to lay the foundation behind your ideas. One thing to remember is that equities, in theory, are supposed to have all publicly available information priced into the stock. This simply means that the market has traded on the stock to reflect a price that captures what is known about the respective company.
Your investment thesis, then, is to set the stage for why you are convinced that the market is dislocated. What evidence is there to suggest that the institutional investors may have gotten it wrong?
While not exhaustive, here are a few areas around which your investment thesis may be driven:
- Strategic Shifts – A company’s decision to make systemic changes to its organization or operations creates uncertainty as to the credibility and confidence of change.
- Misinterpreted Growth Levers – Company developments (organic or inorganic) or its strategic positioning may be discounted in the market or viewed over-optimistically.
- Susceptibility to Macro Factors – Trends in the macroenvironment and/or the industry landscape may create opportunities for disruption or create unanticipated barriers to development and competitive differentiation.
As an example, when I worked on a stock pitch a few years ago for the company Sony, my pitch started off with the following overarching observation that helped to organize my thoughts and structure the presentation:
Sony’s reorientation of its business in 2012 reflected a monumental shift in the company’s vision towards key investment areas and product innovation. Innovations like the PS5 (set to be released in the following years) were not properly accounted for in future projections despite historical precedent for similar key mark product launches, as the company’s stock remained overshadowed by its legacy inability to adapt to technological advances.
How to Structure a Stock Pitch
The general structure of a stock pitch is relatively consistent across the board, broken down into the following sections:
- Investment Summary
- Industry & Company Overview
- Catalysts
- Risks & Mitigants
- Valuation
- Final Recommendation
Section 1: Investment Summary
The investment summary serves to bring your ideas up front in a concise, punchy manner. Often covered over a single slide, include things like:
- Recommendation – The position you hold (buy or short), the target price of the stock, and the time horizon expected to achieve this price.
- Catalysts – The 3-4 drivers behind your belief that the stock price will change (analyzed more closely in the following slides).
- Valuation – The football field summary or median implied share derived from your valuation analyses and what this implies based on the current market price.
- Risks – The items that may pose a threat to your investment case so that the audience knows you’ve analyzed both sides of the story.
Section 2: Industry and Company Overview
In a movie, the industry and company overview would be the plot. The goal with these slides isn’t itself to sell your viewpoint, but more so to give context around the dynamics which help lend themselves to your recommendation.
Industry Overview Guidance Questions
- What are the trends today that you see?
- What does the competitive landscape look like?
- Where is there an opportunity for growth?
Company Overview Guidance Questions
- What is the history of the company (visuals like an annotated stock price chart can help to tell this story)?
- How is the company positioned in its market?
- What are the company's competitive advantages?
Section 3: Catalysts
If the investment thesis is the floor of a building, catalysts are the pillars. Here, you want to detail the near-term initiatives that the company plans to take which will support its capital appreciation. This may include:
- Product Launches
- Geographic Expansion
- Cost Optimization
- Acquisitions / Divestitures
- Leadership Change
Each catalyst should have its own dedicated page to fully explain how you see this as tangible evidence for business growth. This is the meat of your argument, so the key lies in the details of your observations.
Section 4: Risks & Mitigants
As an investor, it’s important to consider all cases, particularly those where things don’t turn out so rosy. With the risks and mitigants section, you are trying to show that you’ve considered there is a probability for downside, but after thoughtful consideration, the potential benefits outweigh the likelihood of these concerns manifesting.
Risks and mitigants are typically laid out on a single page, structured by noting the most relevant potential impediments to the business. This is followed with a few bullets per risk noting what the business is doing, in its strategy and day-to-day business operations, that help to alleviate the threat of this risk.
Example - Luxury Goods Company
Risk: Luxury goods revenue is dependent on a relatively small sales volume at high prices, which leaves its financial performance subject to broader economic conditions that may influence discretionary spending.
Mitigant: The company has relatively high pricing power to counteract potential decreases in sales. In addition, its end market of high-net-worth clients is insulated from recessionary periods that may influence the average consumer.
Section 5: Valuation
Likely the most direct part of the presentation, this section is where you lay out the outputs from your valuation exercises. For individual pages on comparable companies, precedent transactions, DCF, etc., you may want to include a few bullets on the assumptions underpinning your thought process. For example, the rationale as to why certain comps were selected.
Ultimately, however, you will want to create a football field to show what implied share price you derived across your valuation methodologies to determine where there is overlap and where your target share price shakes out.
To learn how to produce DCF, comparable companies, and precedent transaction models, check out our Complete Finance & Valuation Course.
Section 6: Final Recommendation
Similar to the Investment Summary, you want to iterate the main arguments of your pitch in your Final Recommendation. One difference is that you will want to place slightly more emphasis on what your analysis, both quantitative and qualitative, tells you. Synthesize what the market is missing and why your target price is justified.
Stock Pitch Tips
While there is no right or wrong view, there are a few general recommendations we think are important to consider when building out a stock pitch:
- Avoid Starting with a Name – Instead of starting off with a specific company in mind, use what you learn from your research to make an informed decision on your company selection and recommendation. This will avoid you falling into the problem of looking for justifications (as opposed to having compelling catalysts to begin with and working backward to select the company).
- Make Your Recommendation Differentiated – Try to avoid obvious choices for pitches, such as FAANG stocks. Not only will this more likely ensure that your views are seen as unique, but also helps to highlight your diligence in stock selection.
- Do the Work Behind the Scenes – In many cases, stock pitches will include a post-presentation Q&A, which will help to showcase who has done the bare minimum and who has gotten in the weeds of knowing the company beyond what is put on PowerPoint.
- Support Your Assumptions – For any projections included in analyses like a DCF, make sure you have an argument for assumptions.
- Stay True to Your Conviction – The last thing you want to do is finish your work and feel like you don’t have a strong case. Using the steps and tools mentioned in this article will help to steer you in the right direction.
Additional Resources
For full case study coverage on the stock pitch, check out our Complete Finance & Valuation Course and PowerPoint for Business & Finance Course which gives more light on the content and structure for a successful presentation.
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