HF Analyst Pitch Examples

Most l/s hedge fund analyst job postings ask for a company analysis/pitch example for an investment idea you've had. Some specify to keep it to 1-2 pages, but others are open ended. Does anyone have any examples they can share of a company pitch for an interview or application submission? Coming from an IB background I'm obviously familiar with pitch books and sell side research, but I'm looking for some guidelines to a more utilitarian and concise approach rather than a 20+ page opus. Any pointers for hitting the key points in an analysis without appearing overly simplistic would be great.

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I would think the top three questions you want to answer:

What does the company do/how it generates its economic return?

what the Street is missing?

Scenario Analysis/Valuation

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DontMakeMeShortYou:
recommendation: buy/sell upside $ & % downside $ & %

thesis & what's the street missing

what to look for / catalysts

explain upside scenario

explain downside scenario

share some analyses/numbers

And boom goes the dynamite SB for dontmakemeshortyou. Pop your simple 3 statement model in the back if you're feeling chipper. In "what to look for," I'd put an overview of how they make money/some industry crap.

if you like it then you shoulda put a banana on it
 

read a lot of analyst reports from seeking alpha until you're just sick of reading them... then pick bits and pieces from what you liked in them and make your own format.

i'd personally be careful for putting upside potential in $ since you aren't sure how much money the PM will actually put into the position, but i don't really know much because i don't work at a hedge fund

 
wannabeahfdude:
read a lot of analyst reports from seeking alpha until you're just sick of reading them... then pick bits and pieces from what you liked in them and make your own format.

i'd personally be careful for putting upside potential in $ since you aren't sure how much money the PM will actually put into the position, but i don't really know much because i don't work at a hedge fund

no seeking alpha please. garbage reports. way too much qualitative bs without explanation of the impact on #s.

 

Here are some very good examples that are public domain:

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/1768?guestLogon=…

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/1738?guestLogon=…

The numbers should be supplementary and the real focus should be why your thesis is a). differentiated from the consensus and b). ultimately correct.

 
Gray Fox:
Here are some very good examples that are public domain:

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/1768?guestLogon=…

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/1738?guestLogon=…

The numbers should be supplementary and the real focus should be why your thesis is a). differentiated from the consensus and b). ultimately correct.

That was one hell of a slam dunk on AutoZone.

 

Anything that SeekingAlpha comes out with is more or less the most retarded thing I've ever read. Except for anything by Motley Fool.

I hate victims who respect their executioners
 
tiger2012:
BlackHat:
Anything that SeekingAlpha comes out with is more or less the most retarded thing I've ever read. Except for anything by Motley Fool.

Its worthless for individual picks but the site definitely has some interesting macro pieces on there.

I've never personally come across an insightful piece, but to the extent that there is one, it's probably not worth trawling through all the garbage to get to it

 
Best Response

My layout usually goes something like this... condensed version:

1) Introduction - briefly explain the business, competitors, major industry metrics, etc. 2) General recommendation - are we looking at this as a short or a long, what's our time frame 3) Why Now - what makes it attractive now, why does the market love/hate the stock all the sudden 4) Commentary/Catalysts - is the market justified in its love/hate, what could happen to make stock rise/fall, what would the metrics look like if each catalyst happened 5) Explanation - why is the catalyst in favor of your recommendation most likely, why is the other unlikely, what research has gotten you to this conclusion 6) Valuation - briefly explain historic valuation, industry multiple, earnings growth potential, and what kind of return you think we can get (and over what time horizon), and the same for if downside catalyst happens

 

Thanks everyone, very helpful pointers. Appreciate the links. For anyone else who reads this post looking for answers, here are a few other good ones I've used:

  • sumzero.com (limited to 1 idea a week if not a paying subscriber)
  • distresseddebtinvestorsclub.com (has a some equity ideas; free accounts have 50 day embargo on research)
  • marketfolly.com (research isn't as granular, but still some good buy-side presentations and news nonetheless)
 
balls.mahoney:
Thanks everyone, very helpful pointers. Appreciate the links. For anyone else who reads this post looking for answers, here are a few other good ones I've used:
  • sumzero.com (limited to 1 idea a week if not a paying subscriber)
  • distresseddebtinvestorsclub.com (has a some equity ideas; free accounts have 50 day embargo on research)
  • marketfolly.com (research isn't as granular, but still some good buy-side presentations and news nonetheless)

you're showing some great forum etiquette with your follow-up. +1

 

Attachment, you're gunna need graphs and tables. Yes they will quizz you on the pitch.

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
 

I would delete this unless u want 10 other people applying

Disclaimer for the Kids: Any forward-looking statements are solely for informational purposes and cannot be taken as investment advice. Consult your moms before deciding where to invest.
 

I would make a deck in PowerPoint, save it as a PDF file, and attach it with your application. I'd be sure to cover everything in the pitch that would be included in an actual presentation. Maybe someone can link to a good example for guidance?

Also, even if it's not "necessary," this really seems like something you should definitely do if you want the internship.

 

Your going to be up against candidates who have spent months preparing for their pitches. Start now in creating a rough valuation model. In a stock pitch essentially everything comes down to valuation, timing and the contrarian case. I recommend making a slide deck and handing it to your interviewers so you look as professional as possible. Lots of graphs = money. Slides to think about include - Sector positioning, '13/'14 PE multiples, EPS forecasts, emerging market exposure, lead indicators, volume/price trends, downstream market trends, key themes (oil, china, QE, elections, currency, debt crisis, equity flows), cost pressure, M&A, CDS spreads, key catalysts, etc.

 
bearing:
Your going to be up against candidates who have spent months preparing for their pitches. Start now in creating a rough valuation model. In a stock pitch essentially everything comes down to valuation, timing and the contrarian case. I recommend making a slide deck and handing it to your interviewers so you look as professional as possible. Lots of graphs = money. Slides to think about include - Sector positioning, '13/'14 PE multiples, EPS forecasts, emerging market exposure, lead indicators, volume/price trends, downstream market trends, key themes (oil, china, QE, elections, currency, debt crisis, equity flows), cost pressure, M&A, CDS spreads, key catalysts, etc.

Absolutely wrong. Even after I've spent weeks learning a company, my final writeup is rarely more than a few pages. If you come in with a massive slide deck, we will immediately stereotype you as sell-side material. A good analyst can process a ton of data/material and come away with a succinct and accurate conclusion. Displaying a bunch of data points without meaningful analysis is useless. My firm pays $10s of millions to the sell-side for trading & research... we have no reason to bring on someone internally to do that. We need people who can think like investors. Think twice before taking bearing's advice.

 

Unless they explicitly mentioned a presentation, a short write-up should be the way to go. You could go for the classic Tiger 1-page format, or a bit longer, perhaps 3-5 pages. Make sure to discuss exactly how your view differs from the market.

 

The itinerary they sent me as a 1 hr time slot that says 'Presentation of long and short stock idea". I guess I'll call HR and confirm?

Disclaimer for the Kids: Any forward-looking statements are solely for informational purposes and cannot be taken as investment advice. Consult your moms before deciding where to invest.
 

A one hour presentation?! I would guess that you would have to make some slides for that. Sounds really interesting. I would definitely call HR to confirm, but I think it would be a good idea to have slides even if other candidates traditionally did not make slides right? Whatever is easiest to convince them in an hour that you know how to analyze companies and understand the market. Disclaimer: I am a 1st year in IBD so don't take my word for anything.

Good luck, please let us know how you do.

 

Have done a few of these - it will be similar to what you did with the analyst over the phone. They will ask for your idea and are really testing your understand what a market neutral approach is and how you tie your long and short together. Also be prepared to defend your ideas/thesis, why the market has/has not priced your idea in and well as why you think one will outperform the other (probably the most important). You will probably meet with the whole team (including those you initially spoke with) and be prepared to defend your idea with each one of them. I would come in with at least two ideas (in my experience, it doesn't have to be long/short, it can be long only).

Unless they have specifically asked for it, I definitely would not prepare a presentation, write-up or model; there are probably better uses of your time. I would guess that there would be a case study following this round where you'd model and/or present a specific idea and provide a short write-up.

HTH and let me know if you have any questions.

 
baloogafish:
Have done a few of these - it will be similar to what you did with the analyst over the phone. They will ask for your idea and are really testing your understand what a market neutral approach is and how you tie your long and short together. Also be prepared to defend your ideas/thesis, why the market has/has not priced your idea in and well as why you think one will outperform the other (probably the most important). You will probably meet with the whole team (including those you initially spoke with) and be prepared to defend your idea with each one of them. I would come in with at least two ideas (in my experience, it doesn't have to be long/short, it can be long only).

Unless they have specifically asked for it, I definitely would not prepare a presentation, write-up or model; there are probably better uses of your time. I would guess that there would be a case study following this round where you'd model and/or present a specific idea and provide a short write-up.

HTH and let me know if you have any questions.

Disagree about the model thing - how else are you supposed to have a good understanding of the company without a model? You should at the very least lay out a few years of historical financials and build a simple operating model to make sure your catalysts will have the effect you think they will.

What I think will really impress these guys is making a number of industry calls - company mgmt, competitors, etc. Call them up, say you're a private investor, and request a meeting with the CFO/IR rep. Worst they can say is no. I used to put a slide listing out everyone I talked to during my research - went over really well.

 

just had the interview. will make a post detailing how it went. apparently its down to me and another person...fingers crossed

Disclaimer for the Kids: Any forward-looking statements are solely for informational purposes and cannot be taken as investment advice. Consult your moms before deciding where to invest.
 

How are you supposed to have a good understanding of the company without a model? ...Is that a joke?

Know the fundamentals cold, know how it makes money, who its competitors are, what its competitive advantage/moat are, how it finances itself, who the management team is-their track record, reputation, historical performance as an operator, financier, and capital allocator, future plans for growth and how they plan to accomplish those plans, historical and prospective M&A, the list goes on...Plenty of buyside investors including myself rarely even turn to a sophisticated model of any consequence. NAV analysis maybe but what good is a DCF when you plug in more assumptions than facts? Don't get me wrong, I'm not saying models are useless but if you think you can't know a company cold without building some model from scratch you are sorely mistaken.

 
cheese86:
How are you supposed to have a good understanding of the company without a model? ...Is that a joke?

Know the fundamentals cold, know how it makes money, who its competitors are, what its competitive advantage/moat are, how it finances itself, who the management team is-their track record, reputation, historical performance as an operator, financier, and capital allocator, future plans for growth and how they plan to accomplish those plans, historical and prospective M&A, the list goes on...Plenty of buyside investors including myself rarely even turn to a sophisticated model of any consequence. NAV analysis maybe but what good is a DCF when you plug in more assumptions than facts? Don't get me wrong, I'm not saying models are useless but if you think you can't know a company cold without building some model from scratch you are sorely mistaken.

I agree. Obviously you have to know the financials and how they match up with various trends and drivers, but if you are really tight on time, then you probably get more bang out of knowing the qualitative aspects of the business.

 

Lol according to Pat I am no longer a Certified User.

Now to the OP, we need more details.

Firms average age of holdings. Firms focus industry. Makes no sense to pitch a consumer goods pitch to a company that trades muni bonds.

The upside/downside analysis is based on creating Alpha. The point of the pitch is not to show you can analyze the company's numbers and show your analysis. It is to show a strategy to trade off of these numbers. If I was the investor I could care less about alot of the numbers. What I want to know is what trends, technicals, marco or micro indicators, or other indicators you plan on trading off of. The best advice I can give you not knowing specifics is don't assume that any information is neither to macro or micro to affect the company. If the business relies on large revolver credit lines to fund its day to day operations then things like a slight increase or decrease in interest rates could affect EPS for a quarter. Include these types of points briefly in your pitch. It will show that you have the ability to look beyond the published numbers and can foresee potential risks or benefactors from outside sources.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 
soules9219:

I know this will be a noobish question but the only part I am sort of unsure of is the upside / downside calculation:

- Should this be derived from sensitivity analysis of my DCF model?

Yes, your upside/downside scenarios should be based off your financial forecasts. You can do a DCF if you want, but it's very sensitive to assumptions and it's more common to use multiples as shorthand - derive a target price from EPS a few years out multiplied by a range of trading multiples. You should be able to discuss the "right" multiple for the stock in different scenarios.

-Can it be assumed through a comparable analysis based on different percentile rankings of companies (10,20,30) to their respective earnings / share price?

No. This doesn't make sense - what would the 30th percentile of earnings yield among comps tell you? You might look to peers for multiples, but not for your target price.

-Should I base it off of technical indicators?

Depends on the fund. Plenty of managers ignore technicals completely; some will look to it for entry points. It sounds like you're doing a fundamental pitch so this probably shouldn't factor in too heavily in your analysis.

-Perhaps measure the implied volatility ranges to current share price while making some adjustments based on historical volatility?

No. You should be taking a stab at what you think the stock could be worth, not deriving it from options prices. Maybe vol is too high or too low though, in which case options might be a way to express your view.

Suggestions, areas to focus on, formatting and any sort of advice or grilling would be appreciated :)

Formatting doesn't matter. Keep it short and concise if you want it read.

Good luck!

 

Hey @ChimpDaddy great job - I think you are certainly on the right track and incorporated many elements that I commonly see in professional research. One issue is that your pitch is too macro - (ie; making a high level argument for sapphire but not so much for the company itself). Perhaps adding current sapphire market share of the company and competitors & where you see that going, current major customers and % of revenue to each, what projects they are currently involved in (short or long term?), growth strategy ie; how are they going get design wins, what their revenue breakout is by segment and where that is going and why, etc?

Also, you make a statement that gorilla glass may be overtaken by sapphire due to its "inferiority." This is probably the most important part of your pitch because gorilla glass is BY FAR the leader in the space and yet you don't elaborate. I'm not questioning whether your premise is correct or wrong, but you have to support the argument. Some ideas would be to address the lack of production scale vs gorilla, the cracking glass issues vs gorilla, the 10x cost vs gorilla, and how it compares to the new gorilla glass 4 line (supposedly stronger, harder, better, than any previous version).

From the financial review section, I would not go out on a limb for a company and say they are not a bankruptcy threat. We just saw GTAT blow through $500M cash so I hardly think $50M is inexhaustible. You state that they now have a "monopolistic" position but its hard for me to visualize since you did not break out the current state of the market (see above). FYI, there are other sapphire manufacturers than GTAT and RBCN.

As @Gcredit stated, I think the % gain of the stock is probably irrelevant for the competition they are looking at substance.

Again I think you did a good job and are on the right track, and my criticism is only meant to be constructive. Regards.

 

Stock going up big time doesn't mean your pitch was almost perfect. These kind of places look for an overall pitch that covers everything with focus on fundamentals.

I think you already posted the same in Trading forum. If it's already on Seeking Alpha, make it easier for users here by posting a PDF or some better option. The link you provided makes people register there....

 

I disagree with above. You did not do a very good job on this. I still have no idea WHY or HOW with respect to your thesis.

I don't know the word limits of this competition but there is no meat or substance in this write-up. Why is there a shortage in 2015, any trends/stats/data or edge you gained to come to this timing conclusion? Is ES2 patented and what are the other methods?

Don't just say things like "The downside for RBCN is very limited." How are you proving that? Strong B/S, great, but you mention negative earnings and a high capital intensive business, so how does an investor get comfortable with that, and what is the future use of cash in this business, can you break out capex? i.e. $50mm of cash is nothing if it costs me $100mm to operate.

Your title is "the time is right" based on a competitor going bankrupt. Need to flesh this out more, what happened and why will only RBCN benefit?

You mention a few competitors, who are they? Why is RBCN better? Your moats are 100% regarding new entrants, what about the current competitors? They obviously don't need to train technicians and they already paid the "high cost" to enter the market. What is the high cost? This is a small business, can any larger conglomerate crush them with $50mm of capex? This company is TINY, who has pricing power here, the suppliers or the manufacturers?

What's the TAM, market trends? Why is sapphire superior and historically how much market share have they taken from GLW? Just saying someone else is inferior isn't helpful.

The valuation section is not very helpful when you spend most of it talking historical share price and no one new to the company would know what that means since there's no context.

And other posters are right, in both stock competitions and interviews, the short-term result means nothing.

 

I think you bought the dumb money thesis; hook, line, and sinker. You should have spent more time looking at GTAT & explained why they filed. I'm also not convinced you understand both the RBCN & GTAT business models. Here's some thoughts in no particular order:

I spent some time on GTAT, though I'm not even close to an expert. But I think this is a bad business/industry that is receiving a lot of investment currently. I think it will lead to overcapacity and demand/margin implosion. This could be staved off for a few years as adoption of sapphire increases/peaks.

How does this company make money? For example, GTAT, which you cited as a direct competitor, didnt actually manufacture/sell sapphire. They were a worthless middle-man contractor that bought sapphire furnace parts from manufacturers, arranged for shipping of those parts to the end location, and helped the buyer assemble the furnaces & get them running. Is this what RBCN does? or does RBCN actually own/operate furnaces & sell sapphire?

GTAT had tons of liquidity when they filed. They filed because they signed a large deal with Apple to provide furnaces, accepted $500mm+ of prepayments for the furnaces, and then couldnt deliver the furnaces as promised. Apple was going to sue for their money back, and they obviously didnt have the liquidity to repay. This hidden debt caused them to file, because they grew too fast while accepting massive prepays with a bad contract structure. It is also worth noting that GTAT's reorg plan will require them to liquidate the Apple furnace assets. This will create additional capacity. Can this market support significantly more production capacity?

I believe the majority of RBCN's business is selling sapphire that they produce (unlike GTAT). How do they sell these products? Contract? Spot? If its contract, what is the structure? Take-or-pay? Is pricing locked in? For how long? If its spot, why do you think volumes/pricing will remain stable despite the investment coming into the industry? Why does RBCN need to exist if Apple is willing to simply buy their own furnaces & manufacture their sapphire in-house?

Regarding your downside: if margins collapse due to new technology/competition or lack of demand (in-housing), the cash will disappear very quickly due to cash burn. Further, there would be no bid for the outdated furnaces/assets.

Conclusion: I dont think you understand the industry/comps; I think your downside is more realistically $0; and I think you whiffed on all the big issues (how they make money, and why they will keep making money)

Array
 

I think Sanity Check and Cries pretty much nailed the important items. You don't have any summary financials which makes it impossible to evaluate quantitatively the qualitative claims in the thesis. I would also add on the Valuation section I wouldn't consider 15x EBITDA for a highly capital intensive business to be a "conservative" multiple.

 

My suggestions as below, definitely take with a pinch of salt. In a rush now so not going too deep. There is no perfect way to structure a pitch. You haven't mentioned what exactly and how deep you were supposed to go so I've made assumptions.

I've skipped commenting on valuation bit, lot's of other people here with more knowledge.

Thesis: Company being undervalued 'due to increase' part sounds wrong. I can see what you are trying to say but just a sentence construction issue I guess. Others may disagree.

Business Description: It helps to give in one line a split by divisions, revenues and profits as it quickly gives clarity when you mention specific products (i.e. you've mentioned 2-inch-diameter sapphire but I'm not sure what division it comes from and how profitable in terms of margins this product is)

The Opportunity in this market: Here you talk about competition and then just leave it there, not sure if I'm missing something.

Simply citing potential higher revenues and prices is okay but not enough - need to mention commentary from mgmt., competitors with a focus on margins (though I know you've commented below on higher margins). Remember margins are important - you can generate higher sales at the cost of margins.

Bankruptcy point is interesting but after reading I'm clueless why this happened? Regulation? competition? or something else? management screwed up?

Competition: Decent points. But every time people talk about almost no competition it doesn't feel right. One year period and high costs to enter the business are reasons not good enough in my opinion. Lot's of companies sitting on cash.

Business Fundamentals: Would have loved to see more of a comparison between a competitor with some basic ratios. Higher fixed cost for a small company can always be a big negative. Any comments on long-term contracts would have been helpful. Even if you don't have info, for a competition pitch like this one, would have been better to say at least something or make them aware that you know how important longer contracts are for a firm with higher fixed costs. OR, should have said something other than longer contracts as it's not always possible to secure them (you see, sort of a hedge?)

Note: The price was hit due to competition. I just felt you are being a bit too optimistic on your stock as one competitor is out. I know it sounds all well but as an analyst try not to be so excited. Use words carefully.

Overall I would say, tables and bullet points would have been better instead of chunks of text. Year on year growth with margins is always helpful. Some graphs if they were allowed.

I'd say decent job at your level but even for experienced analysts there is room for improvement so keep working at it. It's easy for me to criticise but I'm sure you've worked hard for this so don't let the rejection let you down. A lot of helpful users here and they will comment so listen to their advice and good luck.

 

I agree with the comments by @"SanityCheck" and @"Cries".

I think the problem with your report comes down to your research process. This report reads as if you threw 5 or 6 articles on RBCN into a blender and put it on paper. You'll have more success with your pitches if you build your ideas up from the bottom starting with their financials going back 3-6 years, and then forecasting the next 3 years (a rough operating model with a valuation and cash flow tab shouldn't take more than a couple hours), and then answer these questions in your pitch - here's how RBCN generates revenue, here's what drives revenue, here's why that driver will increase/decrease, etc.

A lot of your pitch relies on macro concepts to illustrate why now is the right time to buy, but once you have an idea of the companies intrinsic value you can make a lot stronger argument as to how a particular macro event could act as a catalyst causing a market overreaction that drives the share price down to an undervalued point.

Noimsayin?

 

Thank you for your candid input. I have made note of my errors and look forward to building a stronger pitch next time. I will share future pitches for feedback, best regards.

@"WhaleofWallStreet" @"SanityCheck" @"Cries" @"MilitaryToFinance" @"Jamoldo"

"Stay thirsty my friends"
 

Lots of good feedback here. Would just add that even if you had written a fantastic pitch, it's a contest. Contests are subjective and not everyone gets to win. Doesn't mean you did a bad job, although in this case there was plenty of room for improvement.

 

I think the responses here are great. But all in all, you have to remember that sometimes, especially in competitions, it's not you who performed poorly; it's the others who performed relatively better.

Fortes fortuna adiuvat.
 

I have had a quick look at your thesis. As I do not cover this industry, I will not comment on whether your assumptions are justified are not. Instead I will focus on the general discussion of what constitutes as a good pitch.

1) At the very beginning of the pitch, you should mention what is your recommendation, is it a buy or sell? What is your target price? This is standard practice among industry research reports. As a fund manager, I don't want to spend 10 minutes digging into your thesis to find your conclusion, I want to see it immediately. 2) Why do you believe the market has mispriced this stock? I'm sure your finance courses have taught you about efficient market hypothesis, equity markets are generally pretty efficiently priced. Therefore, why is it that you think this stock has been mispriced by the market? Is it because you see extra growth upside for the company in which the market doesn't? If so, what is your justification for this extra growth and is it a reasonable assumption? 3) What are some of the catalysts required for the stock to move towards your target price? While in theory you may be right in that there are extra growth opportunities (just using it as an example), however the stock price will not move to your target price unless the market also changes their views about the growth prospects of the company. Therefore, what will it take before the market changes its mind and sees things your way? Maybe we need another competitor to exit the market? (and you have evidence to suggest that the other competitor will likely leave the market for whatever reason) 4) In terms of your valuation, you seem to be using industry average multiples to justify your valuation. However, as I mentioned earlier, companies generally trade at a certain price, and hence multiple for a reason. Therefore what is it about the company that makes you believe it deserves a re-rate and trade at the industry average multiple? This links to point 2) I made earlier. 5) It is good that you included the downside of investing in this stock. Many stock pitches by students I have seen often forget this. However your justification for your downside valuation is pinned on the assumption that the company would be able to sell its assets at 50% discount of book value. While I haven't looked at the balance sheet of this company, however some things to think about is do you believe 50% is a reasonable haircut? If a large proportion of the $144m assets are things like goodwill, or intangible assets such as patents, or even deferred tax liabilities, you may not get a penny from these kinds of things in a fire sale. Even if the assets are fixed assets like plant and machinery, given the specialized nature of the product the company produces, you may have to take a large haircut to get these sold, as buyers may have to spend many millions to renovate the site for other uses.

Overall I think your presentation has some decent content, however the way you present it needs to be improved and the assumptions you make should fit together with the story to make it more coherent. RIght now, my feeling is that you don't have a strong story nor do you have the numbers to back it up. If you can, try to get some broker reports and have a look at how people do a stock pitch in the industry. I suggest you also have a look at Professor Aswath Damodaran's stock pitches (you can find it on his blog) to have a look at how he does his valuations.

 

Fine job, but plenty of room for improvement. I'll dissect a few sentences from the bus fundamentals section.

" However, RBCN does currently suffer from negative earnings due to it being a capital intensive business. " - Why is this hurting earnings? Accelerated depreciation? Fixed costs vs revenue? Capex is a cash flow issue so not really sure if thats what you are trying to get at.

"This low revenue was also due to competition from a company,GTAT, which is now bankrupt." - What low revenue? You never mentioned low revenue before this quote. How much has revenue increased since GTAT went bankrupt if this event is the savior of our top line.

"These higher fixed costs have been consistent regardless of the last 3 years of revenue and will be overcome by the projected growth." -Again, you refer to "these" like you have mentioned fixed costs before, you haven't. Your logic needs to flow from one point to the next. "will be overcome by growth" is way too vague. Try something along the lines of "given current company guidance of 10% yoy revenue growth for the next 3 years and analyst estimates largely in line with this" yada yada yada. Because honestly, I don't give a shit if you think it will be overcome by growth, I care WHY you think it will be overcome by growth.

"This growth will ultimately lead to higher margins that were once realized by Rubicon." - What growth? Exactly what margins were once realized by Rubicon? How will growth bring back the margins? Lets see some numbers.

Also, at the end, you mentioned your expected 2015 rev and ebitda but I don't think you ever mentioned what current rev and ebitda is, thus I have no clue how far of a leap your projections for next year are when you start throwing on multiples to get a valuation. Also, I don't think you ever mentioned a % rev or ebitda growth in the entire pitch, in any capacity,...past growth, future growth..etc. You can't just say, the company has grown, will grow,..etc. We need numbers. I wrote this quickly and poorly, apologies for typos / bad structure.

 

Intended to keep it that way. More than happy to go into detail but in my mind those are the key points that absolutely must be addressed.

Here's the thing. If you can't spot the sucker in the first half hour at the table, you are the sucker.
 

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Career Advancement Opportunities

March 2024 Hedge Fund

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