Investments aren’t always made solo. Occasionally, you may be asked to pitch a stock to someone else — perhaps at a networking event or an interview with a hedge fund. But what’s involved in pitching a stock? This guide will show you how to prepare a stock pitch and give you some ideas on how to craft your best pitch.
What Is a Stock Pitch?
At its simplest, a stock pitch is a recommendation. A stock pitch may be a written document or an oral presentation summarizing the benefits of investing in a particular stock. A stock pitch provides guidance on what an investor should do and why. Therefore, a stock pitch is supported by the company’s story, current numbers, valuation, and risk assessment.
When Do You Need to Pitch a Stock?
Stock pitches are made for a variety of reasons. Investment analysts use stock pitches to make decisions about when to buy and when to sell. You may need to know how to do a stock pitch in the following circumstances.
In an Interview
Imagine, for a second, that you’re applying for a job at an investing or private equity (PE) firm. During the interview process, the hiring manager may ask you to pitch a stock. Your response will give the hiring manager insight into your analytical skills, investment strategy, and your communication style.
At a professional networking event, you may find yourself coming into contact with investing professionals, such as hedge fund managers. Knowing how to do a stock pitch can help you form professional connections. You might also include a stock pitch in an email to showcase your analytical skills.
As Part of Your Job
Financial professionals may be asked to provide stock pitches as a regular part of their job description. Being able to confidently assemble a pitch will be essential to your career.
For Your Personal Investments
While you might not present yourself with an official stock pitch, the skills involved will still make you a better investor. A thorough stock analysis can help you make smarter decisions or even branch out into new sectors of the market.
How to Make a Stock Pitch
Remember, a stock pitch can either be a written document or an oral presentation. A typical stock pitch will include the following details:
- The pitch itself (stock recommendation)
- Company overview
- Investment thesis
- Mitigating risks and other factors
Here’s how to write a stock pitch using the above guidelines as a template.
1. Stick with What You Know
Sometimes, you may be called upon to pitch a stock from a particular industry or even draft a stock pitch for a specific company. But in other cases, you have freedom to decide what stock to pitch.
Stick with what you know and focus on industries that you’re familiar with. Doing so will make it easier to speak effectively about the stock’s potential or to compare the company with its competitors.
2. Pinpoint Your Stock
Again, assuming you can select the stock to pitch, take the time to evaluate possible stocks. You can do this in one of two ways.
First, you can look at qualitative data, such as market trends or developments within a company. For example, a company that’s undergone a merger or acquisition might offer potential for future growth, and even a rumor can boost the stock price.
Second, you can look at quantitative data. Stock screening tools allow you to filter stocks based on any number of metrics, such as earnings per share, price, volume, etc.
3. Present Your Stock Recommendation
Now that you’ve selected your stock, you’re ready to draft the recommendation. Some analysts call this the analyst forecast or consensus. Basically, you’re predicting the way a stock’s price will move based on the data you collected above and providing a recommendation of what to do next.
So make sure to clearly identify the stock in question, offer a recommendation (buy or sell), then offer a brief summary of the data that supports your recommendation. This should be brief since you’ll use the sections below to support your pitch.
4. Provide a Company Overview
The next section should offer some insight into the company. Think about things like:
- The company’s business model
- The customer base
- The position in the industry
- Any business segments
- Competitive analysis
Since you’ll often be pitching a company of your own choosing, this step is mainly to bring others up to speed on the identity of the stock and how they operate.
5. Present Your Investment Thesis
Why is the stock a good investment? Using the data you gathered in step 2, you’ll present the reasons you believe the stock is currently mispriced and explain how a price movement would support the decision you recommend in the pitch.
6. Explain Any Catalysts
A “catalyst” refers to anything that will drive the stock price. This is often due to factors such as:
- Competitive advantage
- Industry tailwinds
- Unique strategy
However, any factor can be a catalyst, including broader market trends, corporate announcements, leadership changes, etc.
7. Provide a Valuation
The valuation is where the rubber meets the road, so to speak. You’ll use your analysis to present a “fair price” of the stock — which will show that it is either undervalued or overvalued on the market. A long-term recommendation will usually focus on stocks that are undervalued, which presents opportunities for growth.
8. Explain Any Mitigating Risks or Other Factors
Finally, your stock pitch should acknowledge any potential risks or other factors that may influence the stock price. For instance, tech stocks have historically been risky, especially in recent years. That may present a risk for investing in another company from the same sector. This section can also help investors weigh these risks against the potential rewards so they can make a final decision.
Stock Pitches: Example
It may help to look at a stock pitch example. In an interview setting, you’ll typically have 10 to 15 minutes to make a full presentation. Here’s how your pitch might break down based on this guideline:
Based on prior analysis, you recommend investing in Company XYZ. Based on the current data, you believe that Company XYZ’s stock is currently undervalued, so you recommend that investors take a long position for maximum growth.
Next, you’ll explain that Company XYZ is a software developer that recently merged with another company to specialize in accounting tools geared toward medical practices, which gives them a slight niche in the fintech industry.
You’ll now explain the reasons why you believe XYZ to be mispriced, which include the fluctuations following the recent merger. But you’ll also explain that the company is poised for long-term growth.
You can follow up on your thesis by explaining that Company XYZ occupies a unique niche, which sets it apart from competitors.
Though Company XYZ is currently trading at $15 per share, you believe that its true value is at least $20, if not higher — again, emphasizing the potential for long-term growth.
Mitigating Risks and Other Factors
Finally, you’ll acknowledge that fintech companies are not always stable but that their business plan sets them apart to thrive even in a competitive market.
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