Learning how to Stock Pitch?
For those of you who have transitioned from IB/PE to hedge funds, how did you go about making your first "professional" stock pitches for interviews? Any guidelines on length? Did you build a model or PowerPoint or just a word memo? Think for tiger cubs/activists/other funds that recruit from PE. I generally follow some stocks but have never made a stock pitch and honestly have no idea what this would be like. Do you typically send a hedge fund a stock pitch or just explain it verbally in an interview?
I can’t speak for everyone but there’s 3 things I would do and did when pitching a “stock”
Don’t think of a stock to pitch, think of a COMPANY (think in terms of the company and not you should buy this stock but you should buy into this company, yeah it’s redundant but it will change your frame of mind).
I could be way off base but this is how I think about pitching and I pitch a bit but it’s not stocks hahaha and a bit more in depth now. Just having some originality sprinkled in with confidence and clear concise high conviction takes that aren’t so mainstream but aren’t easily considered shit will suffice. Hope that helps
Disagree. You should start off right away by telling the audience what the company does in VERY simple words and summarize the key takeaways from your whole pitch. Otherwise you run the risk of losing their attention.
After that you can dive deeper into each of the segments but dont let the listener lose you on the high-level story line.
Following
Agreed. Also you are always pitching a stock, not a company. Valuation matters.
Poor VC guy just got smoked with the truth on "price (valuation) matters."
This is terrible advice.
If somebody pitched a stock like this to me I would immediately think they're unprepared, lazy and unwilling to go the extra mile to find the answers. These are all terrible characteristics to have as an analyst....ESPECIALLY if you're going to buyside.
Cringe billions quote but tend to agree.
Did an internship at Citadel/P72 and the key advice was to focus on the equity story; good businesses does not equal good stock. Focus on why it is mispriced and what will cause it to converge on your price target.
This is how money ends up in FTX
Do whatever amount of work you need to gain conviction on your stock, but your pitch should be 2-3 minutes. In this structure:
Write down what you are going to say. Optimize for words-to-information ratio to be as concise as possible. Rehearse it and practice in front of mirror and then to your friends and during info interviews.
This was my pitch. I got great feedback from associates and analysts. I built a 3-statement model that leads into a DCF. I also added a 'unit economics' tab to work out the current state economics that would help calibrate my assumptions. I purposely kept it short, I didn't want to produce a pitch that was 1hr long. Hope this helps:
$SHOP
Background
Shopify provides a leading cloud-based commerce platform designed for SMBs. Merchants use the company’s software to run their businesses across all channels. Merchant solutions, which makes up 71% of revenue, is their most popular service.
It’s currently trading at $32.00, down ~80% from its ATH of $170, where it was trading @ 290x EBITDA or 48x Sales on 57% revenue growth and an EBIT margin of 15%.
The collapse in price was due to normalizing growth rates and a broad market sell-off.
Recommendation
I recommend going long at the current valuation of 8x Sales as I believe this will yield ample upside over the next 12 mos.
My thesis is:
Exaggerated Results:
SHOPs P&L carries unrealized gain and losses from investments. SHOPs investments primarily contain large positions in AFRM (Affirm) and Global-E, both of which got slaughtered in the current drawdown. FY21A Adj. Net Income equates to $814m while GAAP Net Income is $2.9b. This is due to an unrealized gain of $2.85b recorded in FY21A. In SHOPs Q2 22, SHOP recorded an unrealized loss of ($2.5b) in these investments, which means their GAAP net income is currently ($2.6b). However, Q2 22 Adj. Net Income is only ($13.4m).
Variant Perception
This line item exacerbates the downside, but contributes to significant gains to the upside, as these are both volatile investments.
Valuation:
For my valuation: I assumed SHOP grows revenues 40% yoy, as SHOP increases take-rate, GMV spend reverts. In my terminal year, Merchant solutions consists of roughly 82% of total revenues, increasing my EBIT margin to 26% vs. 15% currently.
This yields a Terminal Tax-Affected EBITDA of ~$7.4b
Subtracting out capex and NWC gives us a FCF of $7.1b.
Using a WACC of 12%, we get a Terminal value of $46.5b today.
If you add back the NPV of FCF of you get an EV of $56b, which is an implied FWD EBITDA multiple of 6.2x.
Finally, subtracting out net-debt you get a Total Equity Value of $58b or $44 per share, which implies 45% upside over the next 12 mos.
Risks:
Catalysts:
Is this what you used in IB interviews or buyside interviews? Great pitch though, definitely going to revise mine after reading this
I didn't apply for any IB positions. I worked at EY SaT (M&A) for a little over a year and I didn't like the job (although I learned a ton), I wanted to focus on valuing companies and following the story of the company (you don't do this in IB -> it's all about turnover), so I decided to leave.That being said, I applied for Sell-Side and Buyside positions, I got offers in both. This pitch that I posted was more tailored to Sell-Side. The Buyside pitch was a bit longer and more technical. Although I will admit, in this market, it's really tempting to setup your own shop, because almost everything is so CHEAP, there'll be serious gains to make coming out of this. Other than that, the advice I'll give is to be technical and pitch things that are somewhat out of favor. Don't pitch Apple, Amazon, Google etc...You won't be differentiating yourself from the pack. What makes this pitch compelling is that it's about a company that somewhat fell 'out of favor' with the market. If I had to choose a company to pitch right now I'll choose the following:- ROKU : (Down majorly because advertising spend got cut substantially. It's usually the first thing to get cut in a recession. If you could pitch why / when it'll return, and the effect it'll have on ROKU's earnings -> this could potentially be a great catalyst / pitch.)- FB (Meta) : Don't think I need to state my case here.- TWLO - CVNA (My brother is an analyst and the best pitch he heard came from a long-thesis on CVNA. This was a few weeks ago.) This will be a VERY hard pitch. - CROX - SE- JD- etc.- etc. It's easy to pitch companies that are Wall Street darlings, but when you speak to analysts, the pitches that are the best are about companies that Wall Street significantly underestimate.A lot of people will say otherwise but it's worked for me and many others. Hope this helps.
This is pretty much Cathy Wood's ARK portfolio.
Fantastic pitch, great clarity.
Can you share an overview of what your unit economics analysis looks like? Also I'm not sure what you hedgies mean by "calibrate assumptions", could you please elaborate?
This book :The Little Book of Investing Like the Pros: Five Steps for Picking Stocks by Rosenbaum(author investment banking) offers a good structure model for pitches.
Also, Pitch the Perfect Investment The Essential Guide to Winning on Wall Street by Paul D. Sonkin, this book has a more practical chapter on how to pitch a PM.
how many pitches should i prepare for a L/S equity interview? is 3 enough (2 longs, 1 short), or should i be preparing more?
This should be sufficient.
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