INVESTMENT QUESTIONS TO ASK

Profitability

• Does the company retain earnings?
• Are retained earnings increasing?
• Does the company consistently achieve high returns on capital?

Moat

• Does the company have a durable moat?
• What are the moat sources?
• Do customers have to keep buying the product or service?
• How is the company culture?
• Is the company obsessed with customer satisfaction?
• Quality of customer service?
• Quality of company in employee, vendor and customer eyes?
• Does the company occupy the economic high ground?
• Does the company satisfy basic human needs of its customers?

Competitive Analysis

• Is the company in a boring, no-growth industry?
• Does the company rely on innovation?
• Is the company cyclical?
• How did the company’s finances behave during financial crisis and recessions?
• How is the competitive landscape?
• Who are the competitors? Read their financial reports.
• How are the competitors performing?
• Can the company charge premium prices?
• Is the company the market leader?
• Does the company have the best sales force in the industry?
• Are companies in the same industry generally profitable?
• Does the company have a very long operating history? 100 years?

Growth Prospects

• Will the company be much larger 10 years from now (destination analysis)?
• Does the company have plenty of room to grow?
• What are the value drivers?
• What’s the current size compared to total addressable market?
• Sources, quality and sustainability of growth?
• Where in the business cycle is the company?
• How is the company growing? Increasing sales of existing product, repeat customers, new products, acquisitions?
• Does the company have a track record for successful pivoting, expansion, entering new markets?
• Do customers need to keep buying the product?
• Can the company spin off businesses and unlock value?

Management Quality

• Is the company run by capable management with a great track record?
• Management integrity?
• Does management keep promises and deliver on what they stated they would do?
• Founder CEO?
• Does management have a high percentage of shares?
• Is management incentivization aligned with shareholder interest?

Capital Allocation

• Does the company buy back its own shares?
• Does the company acquire other businesses?
• Does the company pay dividends?
• How does the company create shareholder value?

Personal Analysis Capability

• Is the company’s business within my circle of competence?
• Do I have personal experience with the product or service?
• Is the annual report short?
• Is the business model simple and easy to understand?
• Is the reporting simple, or complex and convoluted?

Bear Case – What Could Go Wrong?

• Regulatory risk?
• Delisting risk?
• Lawsuits?
• Future obsolescence?
• Cheaper substitute product/service?

Valuation

• Are the earnings predictable?
• Time series and cross-sectional analysis
• Vertical and horizontal analysis
• Is P/E suitable for valuation?
• Does the company derive a big part of its value from intangibles that get expensed instead of recorded on the balance sheet?
• Are P/E, P/FCF, and P/S lower compared to previous years?
• Do I need Excel to figure out whether the current share price is very cheap, or is it pretty obvious?
• Did a negative event result in a temporary price drop, but the long-term business outlook isn’t affected?