This was originally posted on 10/26/12
For many positions, the stock pitch is the biggest part of the interview. It gives the interviewee the opportunity to explain his or her thought process and the way they evaluate an investment opportunity. It can separate the fakers from the legitimate candidates. In many cases it can be the difference between being asked back and being sent home.
But there's no class you can take that teaches you to properly pitch a stock or provide you with a stock pitch template. And there's plenty of people on this forum who are better resources than I am, and hopefully they'll chime in, but I've pitched the same 5 companies dozens of times and seeing the pitches that succeed and the ones that fail, I'd like to share my experience as to how you should go about pitching a stock in an interview.
Getting right to it, here's my checklist of things you should be sure to include when pitching a stock in an interview.
1. Industry Overview
Rather than starting with the company itself, outline the industry it is apart of and begin making your case for why it's an attractive place to be investing. Consider the following questions: What makes this industry economically viable? What makes the barriers to entry high enough to keep competition from destroying these economics? What is pricing power like and why do consumers accept it? For the consultant-types among you, think Porter's Five Forces. But I hate those.
2. Company-Specific Overview
Now explain where the company you're pitching fits in with the overall industry. Is it a market-leader, does it dominate a specific niche within the sector, or what makes it attractive compared to its competition? We'll get to valuation later, but if the reason you're pitching this company rather than another is simply that it's underpriced relative to competitors, be sure to highlight why your company is no different than the others in the industry then. Know the major profitability metrics for the business compared to competitors, such as gross and operating margins, EPS growth, and anything specifically relevant to the industry.
3. Where the Market Is Wrong
It wouldn't be a great opportunity unless the market was missing something, so this is where you want to point out why the security might be underpriced, what the catalyst(s) will be that changes this, and why you think that catalyst will happen. There's no specific information I can give you here since I think this is what separates a good analyst from a great analyst... just having the "edge" (I hate that word) to see right away that there's questions to be asked and possibly something Wall Street isn't seeing. Normally it's going to be something like the market not understanding a specific growth opportunity, an expense-related advantage, or a one-off event that people perceive as a fundamental shift in the business.
This one's tough since you don't have 6 hours to explain every facet of a model or something ridiculous like that. What's important to know is the multiples for your company, the industry, and why there is a difference or why there should be a difference. This will usually relate to whatever it is the street is missing. Be sure to know the basics of your company's capital structure and what valuation metrics are important. This is a good opportunity to demonstrate that you're not retarded and know when to use EV/EBITDA over P/E or something else. Also important is some notion of a price target post-catalyst, and some estimation of what you think would happen to the stock price if the catalyst worked against you. This gives the interviewer a chance to see that you understand what risk/reward is. Bravo!
And remember, don't spend too much time on any one part of your stock pitch. The pitch shouldn't take much more than 5-10 minutes and leave plenty of time for the interviewer to start up a conversation and ask some questions. Being succinct is as important as being right.