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Stock pitch guide: basics, insights, and practical tips
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Stock pitch guide: basics, insights, and practical tips

stock pitch guide
stock pitch guide

In this guide, we discuss the intricacies of stock pitches. You will discover the crucial elements of a stock pitch, such as the investment thesis, DCF model, and risk mitigation options. You will also learn how to prepare a successful presentation and pitch a stock to any potential investor.

What is a stock pitch?

A stock pitch is a multipurpose tool that helps capital markets professionals identify and evaluate each other as well as promising opportunities. When presented correctly, a pitch stock can increase your credibility within the field and put a start to limitless profitable ventures. 

Stock pitch definition 

A stock pitch is a verbal or written presentation that analyzes the potential of investing in a public company. Stock pitches can both advise pro and against the share and are often used to measure the presenter’s market analysis skills. 

As you will see from the sample stock pitch template below, stock pitches consist of several crucial elements, including company research, market share, investment thesis, investment risks, and stock’s key drivers.

But while the quality and quantity of the necessary information call for an extensive period of time, in some cases, you will need to put a stock pitch together on short notice.

Typical stock pitch scenarios

To know how to do a stock pitch correctly, you need to have a clear objective in mind. This means building your stock pitch according to the target audience’s expectations. Below are the most common applications of stock pitches in modern deal-making. 

Networking

Stock pitches are powerful tools for connecting with hedge funds and investment banks. You can include an investment opportunity summary in the form of a stock pitch in your introductory email to showcase expertise or offer services. 

Your priority, in this case, is to keep the delivery concise but valuable.

Education

Pitching a stock has become a crucial part of business schools’ curricula in the past few years. Students can enroll in a stock pitch competition, join investment clubs, or even pitch an investment thesis to existing hedge funds in the prospect of landing an internship. 

Primary research is typically sufficient for educational purposes since the main goal is evaluating students’ skills rather than the practical implementation of their idea.

Interviewing for a job

Hiring managers of private equity (PE), hedge funds, and personal investing firms include stock pitches in the interview process. Your stock pitch will help the decision makers evaluate how much conviction you have in your analytical methods, where you source investment ideas, and how your delivery style aligns with their organizational values. 

Just as at any other job interview, the key elements here are thorough research and confidence.  

Fulfilling job duties 

Consequently, if you had to create two to three pitches during the hiring process, stock pitch development will be a part of your job description. Most hedge funds, or any other established financial institution, expect associates to monitor the industry trends and sometimes initiate internal stock pitch competitions to brainstorm ideas and explore new territories. 

Investment banking and hedge fund professionals must have the deepest understanding of stock mechanics. In such scenarios, you can spend several weeks on a single stock pitch. 

Building a personal portfolio 

Once you master stock pitches, you can use them as a research formula for expanding your own portfolio. While you might not need to convince yourself with an eloquent investment thesis, it is still a good idea to take a deep dig into the company’s background, financials, and key risks. 

While a personal investment pitch is less demanding, stock pitch mistakes will cost you. Therefore, research the public company you want to invest in with the same scrutiny as if you were doing it for a client.

Stock pitch structure

Let’s review the basic structure of putting your investment ideas into a stock pitch.

Recommendation statement 

The first part of your stock pitch is always a brief summary of your investment idea. You must mention whether you suggest longing or shorting on a specific company and offer a strong reason why. Keep this section concise, as you will have the opportunity to go into more detail in the investment thesis.

Insight: When pitching stocks to a hedge fund or any other investor, make sure you are familiar with the target’s portfolio and market outlook. 

Company overview

The next step of your stock pitch is the overview of the company background, including the market share and major industry trends. You can also include the stock price and trading volumes data for the company’s entire existence or recent years. 

Insight: Create a comparable company analysis template when selecting a pitch candidate from several similar companies. For example, when comparing biotech startups, line up their recent innovations and patents to distinguish the most promising venture. 

Investment thesis 

The general idea behind an investment thesis is to state why the market is wrong about the current stock price by evaluating market cap, equity research, PE, market sentiment, and other factors. 

Insight: The thesis is the quintessence of your investment ideas that essentially define the value of the stock pitch. To ensure you sound convincing, draft several investment thesis examples before picking the final one.

Price correction catalysts

Back up your investment thesis by mentioning the upcoming events that will affect the stock price and push the market to fulfill the asset’s intrinsic value. These include product launches, acquisitions, cash flow fluctuations, and competitor tactics, among others.  

Insight: Quarterly reports and press releases are great sources of typical catalysts for stock pitches. For example, Apple and Samsung presentations are famous for briefly but noticeably influencing the market with new product announcements.

Valuation

Stock pitch valuation depends on whether you are making a long or a short recommendation. This way, if you suggest longing, you need to prove that the present value is too low. Similarly, argue that the price is too high if you want investors to short.

Insight: There are two general valuation metrics used in stock pitches – DCF and NAV. DCF calculates the profitability of investment ideas based on expected cash flows. And NAV divides the value of the cash flow and securities minus liabilities by the number of outstanding shares.

Risks and risk mitigation options

Finally, describe all the key risks associated with your suggested investment strategy and the options to alleviate them. Rely on the combination of fundamental and technical analysis, the company’s market cap, and primary strategies. 

Insight: Make sure you only consider risk factors specific to the company. For example, the global recession applies to the entire market, and you don’t necessarily need to feature it in the stock pitch.

Stock pitch template and examples

Below is a generalized stock pitch example you can use as a template. Please note that any information listed below is presented for illustrative purposes and does not serve as a functional trading signal source. 

Stock pitch elements 

1. Recommendation Statement

Content: The main reason to consider the stock.

What to include: 

  • Whether you suggest to long or short
  • Expected value spike or drop
  • Time frame

Example quotes: “I recommend longing the ABC stock because it is undervalued by 25% and could increase in value over the next 12-18 months.”

2. Company overview

Content: The background of the company you are pitching. 

What to include: 

  • Industry
  • Geographies
  • LTM financials
  • Market cap
  • Base projections
  • FY prices and volumes

Example quotes: “LTM financials: $2 billion in revenue; $1.5 billion EBITDA; $1.3 billion FFO.”

3. Investment thesis 

Content: Why is the market currently wrong about the stock’s value?

What to include: 

  • Factors that contributed to imperfect pricing
  • Reasons why the market hasn’t yet corrected
  • Recommendation  

Example quotes: “Historically low P E ratios despite positive earnings and optimistic fundamentals. The market has not yet realized the potential of expanding demographics. It is strategically wise to long this stock within the next month.”

4. Price correction catalysts 

Content: What factors will affect the price in the suggested time frame?

What to include: 

  • Product launches
  • Expansions 
  • Positive FY earnings

Example quotes: “ABC is to finalize three additional acquisitions within the next 6 months, adding to the enterprise of seven previously acquired companies.”

5. Valuation

Content: Whether the current value is too low or too high.

What to include: 

  • Model(s) you used to calculate the value

Example quotes: “According to the DCF valuation method presented above, the ABC equity value per share is $120.5.”

6. Risk factors and mitigation options

Content: Risks your investors might face and how to reduce them.

What to include: 

  • Risks specific to the company, such as constant innovations in the field, political uncertainties, growing offer
  • Mitigation strategies

Example quotes: “Just like ABC, its competitors often announce innovations. This can be alleviated through contact R&D investments.”

How to make a good stock pitch?

Now that you know how to structure a stock pitch, it’s time to take this skill to the next level. Next, we will discuss how to pitch a stock successfully to appeal to even the most meticulous investment competition decision-makers and hedge fund chairs.

1. Believe in your investment ideas

The investment idea at the base of your stock pitch has to be well-researched and backed up by relevant data. But by the end of the day, the best screening tool is your judgment. Below are some tips for getting on the right track when pitching a stock.

Know your investor

Whom are you going to pitch to? Perform the equity research of the hedge fund or private investor you are targeting to understand what companies they usually go for and what their target price could be.

Also, pay attention to the type of transactions they typically finalize. For example, a long-only fund is less likely to be interested in a short recommendation.

Focus on the industries you are familiar with 

An industry overview is much faster and easier if you are familiar with the field. Additionally, you can leverage your Capital IQ access or private equity connections to locate a promising investment opportunity for a stock pitch.

Choose a company with minimum key drivers

Stock pitches are more effective when they are straightforward. Pick a stock price with clear technical analysis patterns and only three or four key business lines. Any more would clutter your stock pitch and might substantially reduce valuation accuracy.

Stay alert for confusing financials

Cash flows and balance sheets must be transparent. No matter how good your investment idea is in theory, messy financials add risk factors and reduce your credibility. What’s more, an established hedge fund would never consider a stock pitch based on unclear numbers.

Look for clear catalysts 

Look for direct catalysts such as acquisitions, innovative patterns, and product launches, as they usually have an evident impact on the market and often result in higher revenue growth. To ensure you make the right choice, analyze average sales associated with similar events in the past and note how they affected the stock price.

2. Invest time in research and valuation 

The research process is arguably the most time-consuming part of your stock pitch. You must sound confident and knowledgeable to convince a private equity firm or a hedge fund to follow your recommendation.

Explore the company and its industry 

There are numerous ways to backup your investment idea with data. Start by exploiting free resources, such as the company’s press releases, annual reports, and stock charts. Take your time to understand the company’s business model and reach out to their representative if something isn’t clear.

You can also set up a personal trading account to apply your theory on a smaller scale. There are two approaches to take, depending on how much time you have.

  • Faster way

Get your relative valuation from public-access tools, such as Yahoo finance. In case your stock pitch is for presentation purposes only, basic data will usually be enough. 

  • In-depth way 

Consult investment professionals to get a deeper insight into your stock pitch. Use professional social networking channels to connect with partners, major clients, suppliers, etc. 

Build a DCF valuation model 

DCF or Discounted Cash Flow model is a very common approach to evaluating investment potential. The formula takes into account the cash flow period, interest rate, and the number of years before the future cash flows get realized.

DCF is an extremely popular form of valuation metrics, so it is virtually compulsory in stock pitch competitions. Organize your calculations in a spreadsheet and ensure to keep it below 300 rows to save investors’ time. 

3. Present your stock pitch well

The delivery style for your pitch varies based on the audience. But there are a few universal suggestions that will help you present stock pitches to professional investor firms, private equity experts, and anyone else.

  • Lead a conversation instead of making a speech

Your stock pitch presentation should open the floor for additional ideas, concerns, and questions. Once you express your investment idea and deliver the investment thesis, address any queries before moving on. 

  • Get ready for some Q&A

Extend the conversation at the end of the stock pitch. Be ready to answer any questions regarding the stock’s current price, the company’s quality, and the risks associated with this public company’s stock. Thorough research will be a great asset at this stage.

  • Admit the gaps in your knowledge

Even the deepest investment research will not cover the whole picture. When stock pitching, prepare for questions you won’t have answers to. Acknowledge the inquirer and get back to them with the response after the stock pitch. This is significantly easier during written pitches, as you can research as you go.

What to avoid when making a stock pitch

So far, we’ve covered most of the stock pitch do’s. Now, it is only fair to mention the don’ts as well. Avoid the next three approaches to investment idea sourcing, whether you are participating in an undergraduate stock pitch competition or applying for an investment banking or hedge fund position. 

Quantitative screening

Quantitative screening is one of the rudimentary forms of volume analysis that relies on mathematical principles alone. Unlike relative valuation, this approach does not consider factors beyond the dry data, which results in substantial valuation inaccuracies. 

Moreover, predictions and trailing in technical analysis follow patterns that are too impractical compared to fundamentals.

Hedge funds might consider elements of quantitative screening in your stock pitch only if you back it up with substantial catalysts. 

Sell-side ideas

Sell-side analysts are too involved to deliver relevant data. What’s more, once the stock pitch idea is out, it quickly loses its P E value with the drop in originality. Take pitches from brokers with a pinch of salt and rely on your own research instead. 

Hedge funds’ public disclosures and hedge fund word-of-mouth

A hedge fund might also not be a very reliable idea source. For one, it is practically impossible to evaluate the actual state of every company’s quality and overall portfolio. Misinformation and generic ideas are the worst enemies of your stock pitch, so it is better to steer clear of them.

Stock pitch interview questions to research

As already mentioned, you must be ready to protect your investment opportunity pitch with information. Below are the examples of questions a hedge fund or any other buy-side interviewer can ask during or after your stock pitch.

  1. What techniques did you use to form your investment thesis?
  2. Why is this a good investment right now?
  3. What are the primary revenue drivers?
  4. What is the company’s market share?
  5. How does the company stand out from the competition?
  6. Who manages the company, and who serves on the board?
  7. What is the customers’ feedback about the company in general and on its recent products in particular?
  8. Is it possible that the company is undervalued due to the discounted value of its cash flows?
  9. Do you have any other stock pitches in the same or a different field?
  10. Why are you pitching this idea to me/our hedge fund?

Stock pitch: final takeaways

The quality and consistency of stock pitches play a crucial role in forming market key drivers. To successfully pitch a stock, it is essential to cover all the contributing factors, from valuation metrics to potential return presentation.

The foundation of every effective pitch is a deep understanding of the investor and sufficient research. While it is virtually impossible to get ready for every question and concern, the more you know about the company background and performance, the higher chances your pitch has.

Finally, it is best to continuously explore the market and draft pitches on any interesting instrument. This will allow you to build confidence and credibility for any future presentations.

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