Ever wondered how to pick a stock? We are putting your money to work. We're not just getting your money a job—we're giving it a full-fledged career path. Tune in as we match your dollars with the perfect corporate culture, make sure they're in a position with room to grow, and find a place that offers the financial cushion to weather any storm
In today’s episode, we’re diving deep into the how-tos of analyzing a stock. You’ll learn how to:
Using our fictional favorite—Ought to Be Creative Inc. (ODBE)—as a case study, we'll guide you step-by-step. (In the episode, we used a real example. *this is not financial advice: key word example*)
Investing is like hiring your money to work for you. Imagine sitting your dollars down for a pep talk: "Listen, it's time to grow up and get a job." Well, you've picked a company where your money can clock in—now let's find out if it's a gig worth taking.
To learn how to spot the perfect job opening for your money, check out episode 8: "How to Find Stock Ideas and Have an Investment Thesis". Just a heads-up, this isn't the be-all, end-all guide but a solid start to becoming an informed investor. In legal jargon: this is for educational purposes, y'all. (Wink, that's a disclaimer.)
This is your lightbulb moment. Your investment thesis is your educated guess—think high-school science fair, but with real money on the line. You've got a hunch; now, it's time to roll up your sleeves and prove it. Think of it like your hypothesis in a science project. You have dissertation as to why you want to buy the stock. This could be based on the overall macro environment, a trend you saw on social media, based on external factors like fiscal policy, or rising energy costs. Your idea can come from anywhere.
Example: Labor Shortages & The AI Revolution You hear in finance media that there's a labor shortage, meaning not enough people to fill jobs. To attract workers, companies are offering high bonuses and better pay, making it more expensive to run the business. You believe investing in productivity tech, like AI or software, can help businesses do more with fewer employees. So, you think stocks related to AI and productivity software are a smart investment because they address this big issue.
This is where your brilliant idea comes in. You've read a ton about AI and productivity software—like our play for today, Ought to Be Creative Inc. (ODBE). You think they've got the solution to a larger issue.
Ought to Be Creative has two business models spanning direct to consumer and direct to business. They offer a variety of products inthe creative space that utilizes AI to automate digital offerings across the Oughtto Be Creative Suite and have set the standard in the industry.
Before you send your money off to its first day on the job at ODBE, think of this step like you're the HR rep and the company is the job applicant. You're gonna grill them in the interview. To back up your investment idea, you need to dig deep into the company, just like preparing for a job interview. Knowing the company's growth, leadership, and future potential is key. You're essentially asking if this is a company you can "grow with" as an investor. You can find all this info on the stock's profile page on your brokerage website.
What Does ODBE Do?
How Does ODBE Make Money?
Who's in the Ring with ODBE? (Competitive Advantage)
Who’s Steering the Ship? (Leadership)
The Winds and Currents (Industry Trends)
We're looking at EPS. We're looking at revenue. We're looking at profit margins. We're looking at P E ratio. We're looking at all of these things to analyze if the stock is worth buying now, if it's too expensive or not and what the projected growth is. If you don't want to do all of that fundamental analysis yourself, or you're still like learning about how to make sense of it all, just go to the analyst ratings.
You've had the warm, fuzzy conversations—now it's time to peek under the hood and look at the numbers.
Earnings Navigate to the earnings tab on your brokerage firm’s website and look to see if earnings have been beat or missed on past quarters. You also need to look forward, have analyst raised earnings estimates? (this is normally in bar chart form, you want to see the bars increasing)
Revenue This is where the sales are coming from.Companies can have increasing EPS or go up in value with out revenue. We need to check this, is revenue going up? Is it growing and/ or is it expected to?
Operating Expenses Is this decreasing? What is the trend here?
Profit Margins The combination of revenue and operating expenses will then give you a profit margin. This is the cushion the company has; you want to see that cushion expand. This can come from an increase in revenue and/ or a decrease in expenses. Preferably both. A profit margin is like the company’s emergency fund, the higher the profit margin, the higher the ability to navigate any potential turmoil that may arise.
P/E Ratio To figure out if a stock is priced fairly, it's helpful to look at its forward P/E (Price to Earnings) ratio and compare it to its sector and the overall market, like the S&P 500. If the company's forward P/E is lower than both, it might be undervalued. You may have heard financial experts say a stock is "cheap from a valuation perspective" or "has an attractive valuation." This is one way they make that judgment. But remember, this isn't the whole story; you'll need more info to make a solid investment decision.
When you put it all together, if you find that a stock has both a higher P/E ratio and higher expectations for revenue and earnings growth, it generally means the stock is more expensive compared to others in its sector or the overall market. However, the higher price might be justified if the company is expected to grow significantly in the future. In this case, the high valuation could be a sign that investors are willing to pay a premium now for anticipated future growth. Use this combined data on P/E ratio and growth expectations, along with other metrics and research, to either validate or reassess your investment thesis.
Jess is actually known for this, and we’ll tackle this in a future episode. But if you're itching to know more, shout out to us on social or Spotify!
Jessie: You're listening to Market MakeHer, the self-directed investing education podcast that demystifies the stock market from her perspective.
Jess: We're your host. I'm Jess Inskip, the resident finance expert. Been in the industry for about 15 years now. I was licensed for 10 of those years and gave those up to post financial content on social. You can catch me on CNBC and Fox Business Weekly sharing my market views.
Jessie: And I'm Jessie DeNuit, your guide on this journey to financial empowerment. I convinced Jess to start this podcast with me to teach me how the stock market works and I'm taking you along on the journey with me, which means I ask all the questions you are thinking. Make sure we actually understand what is going on and more importantly, I keep Jess away from financial jargon land.
Jess: Yes. Thank you. Today by popular demand and requests from one of our listeners that Jessie met over the weekend, we are going to show you how to analyze a stock. I'm going to take Jessie through my process of looking at a stock as an investment opportunity and all the tools and resources that are available to you.
Jessie: I already see all of the rabbit holes emerging that we're going to go down today. Oh, we're already there. Drink that liquid that makes you smile. Here it is.
Fed and inflation update, seasonality. earnings report card & the AI tea