Let’s Talk Qualitative Analysis

We always tell you to “do your research” before picking which stocks to invest in, but sometimes doing your research can get a little intense. There are so many things you can research about a company, its products, potential for growth, cost structure and so on – how do you even know where to start? Many people start with qualitative analysis, fundamental analysis, and technical analysis. Now you’re asking, what the heck are those? Sound’s pretty complicated. But, it’s really not so bad when you break it down.

Qualitative analysis of a company generally outlines the more subjective pieces of the business – factors that cannot be explained in numbers, but can tell you a lot about the company’s future. Conversely, functional analysis delves into the wide scope of quantitative aspects that can describe a company – things like the company’s growth rate, yearly profits, and cash flows. Lastly, technical analysis is a summary of the specific stock’s past performance in the markets. All of these types of analyses can give investors a broader scope of the value of a company, broadening their ability to predict the company’s future worth. But where should you start?

Let’s start with the first type of analysis: qualitative analysis. Here are some of the most important questions you should ask yourself when starting your qualitative analysis research. While this list is not a complete list of all of the things you should consider in your research, you might find that it gives you a good head start.

1. Management:

Who runs the company? Try to find out about anyone in a primary position of power: CEO, CFO, COO, CMO, etc. and learn what their goals are. How long have these people been in charge? Typically, if a person has been in charge for a long time, it would suggest that their management has been successful in representing the goals of the company. Where are they from? For this question, think about their educational and employment backgrounds. With a simple Google search, you might also be able to learn about the company’s management style. Is the management team more stern or personable? How has this style worked (or not worked) for the company in the past? Different management styles can either help or hurt a business, which is why understanding a company’s management structure might provide you with some very helpful insight.

2. Customers

Are the customers satisfied with their products or services? How much are they willing to pay for the same services? How frequently do customers return to repurchase products from company? Search customer reviews online for a good indication of how pleased past customers are with their purchases. Satisfied customers could mean more growth! Think about it: if you love your new MacBook, you might consider buying more products in the future or even investing in Apple stock.

3. Social Responsibility

What kind of impact does this company and its products have on the community? Does the making of these products positively or negatively affect the local community or the planet in any way? Is the company affiliated with any external organizations? Answering questions like these may clue you in on the general sentiment of the people closest to the company you’re looking at. For example, if a food company is highly involved in promoting nutritional and physical health, more consumers may be drawn to eat their food simply because of the company’s positive values!

4. Existing Products and Technology Pipeline

What kind of products or services does this company provide? How does this company differentiate (or plan to differentiate) its products from other companies in the industry? How frequently do people need or use these products? Does the company provide a diverse range of products in order to best serve the market? Becoming familiar with a company’s products is always a good way to better understand its mission, revenue stream, and market share.

5. New Product Rollouts

What is the timeline for new product releases? Does the company have any new products coming out soon? The answer to these questions may be hard to find, but depending on their new release timeline, you may be able to better plan out when you would want to buy shares of their stock.

6. Marketing and Branding

What kinds of ads or promotions does this company run? In what way (and how frequently) do they get in touch with their customers? How successful have their past marketing campaigns been? Are they pushing marketing materials to the right people? What does the brand name mean to you? Questions like these are all very indicative of the future success of a company. If a company cannot reach customers (and potential customers) in the most effective way, it might have a hard time making the kinds of profits it aims to. In answering these questions, you might also consider looking at the marketing strategies of the industry leaders and any of the company’s close competitors. Knowing how a company’s marketing efforts stack up to efforts made by the competition can be a good indicator of future success relative to the entire industry.

7. Future Growth Potential

Where can you buy products from this company? How does the company plan to expand to untapped markets? Are the products something that people all around the world would be interested in? If the company has good global reach or potential to expand, you might more seriously consider investing.

8. Ability to Adapt

How has this company adapted to adversity in the past? The answer to this question might show how well a company could adapt to changing markets and consumer demands in the future, which may be a good indication of future success. For example, a company like Blockbuster (a movie rental store) was unable to adapt to changing technology and no longer exists, whereas a company like Netflix has been able to switch from its past DVD rental format, to a completely online servicing model.

You might not be able to find information on all of these subjects and this list may not be all-inclusive, but finding answers to even some of these questions can definitely give you a better indication of the company’s current success level. You can then use what you know to assess where you think the company will go in the future. Note: it is hard to predict the future by looking at the past; but the more you know about a company, the more confident you will be in your investing decisions. Check back in for next week’s summary of fundamental analysis!