Stock Pitch Guide

1. What Is a Stock Pitch?

In this article, we will be concentrating on stock pitches only, and won’t be taking credits, debts, or anything other than stock into account.

1.1. Stock pitches can be used in various circumstances

Stock pitches are essential because equity research analysts on both the buy and sell sides of the market create them to start a conversation on a prospective investment. However, stock pitches are also being used in various situations:

• Networking: If you want to network with professionals in the field (for example, hedge fund analysts), you should include a sample stock pitch in your introductory email.
• Clubs and competitions: You might be familiar with these investment or finance clubs/contests for undergraduates. These clubs and contests basically create stimulations of when you actually do stock pitches in interviews or at work. 
• Personal investing: Stock pitches can aid you in making smarter decisions if you have a personal trading account and invest in particular stocks.
• Interviews: Last but also most importantly, you must always be prepared for the question of “Pitch me a stock” during hedge fund and asset management interviews. Candidates might underestimate the significance of pitches in interviews; however, a strong pitch plays an important role when you are interviewing for a position at a financial institution of any kind – it may be the difference between getting a second chance or being sent home. Even for investment banking analysts, whose job entails more Excel work than investment research,  being ready to pitch a stock is critical. 

1.2. Stock pitch is a must in buy-side interviews

At least 2 to 3 stock pitches should be prepared before hedge fund interviews, while for private equities, interviewees are assigned modeling tests and case studies with pre-selected companies. Stock pitch in interviews is different from real-life ones in a way that recruiters evaluate candidates based on whether the evidence in supporting an investment idea is well-reasoned, not on whether the investment idea is right or wrong.  

Most stock pitches are open-ended in which recruiters may give their candidates weeks to choose a company and do research at home while some firms will announce an assigned stock 4 to 5 hours before the official pitching starts. In this situation, candidates are expected to work effectively under the pressure and time constraint.

1.3. Structure of a stock pitch

A common framework used in stock pitching includes 6 sections:

• Investment Idea 
• Summary Company Overview
• Investment Thesis 
• Catalyst
• Valuation
• How to mitigate risks

In the following part, we will give an overview of how each part should be carried out, with examples and tips included. 

2. Stock Pitch Template and Examples

2.1. Investment Idea Summary

A stock pitch typically starts with an overview of the stock’s upward/ downward trend based on its key data with target price, plus the interviewee’s conclusion on whether to buy or sell the stock and your position (long or short). This section should be straightforward and actionable, with a 1 or 2 sentence summary of your investment idea. Interviewees should only use neutral recommendations in case they are not so sure about the business growth.

2.2. Summary of Company Overview

In the company overview, you’ll find a short summary of the company’s business segments and products/ services, as well as significant financial metrics like (revenue, EBITDA, market value, and current multiples). Instead of copying and pasting details from fillings or annual reports, it’s essential that you avoid adding the corporate speech and only choose the most relevant aspects. 

A brief industry forecast should be included in the company background to show the firm’s position in the market as well as its distinctions from its rivals. The company’s business model is another component that helps explain the company’s product line, income stream, customer segmentation, and so on. Company statistics, such as market cap, revenue, market value, debt, and key shareholders, should also be mentioned to offer an overview of the business’s performance. 

Below are the examples of Salesforce.com’s company and industry overview, done by the winning team of the 2021 YIS Global Stock Pitch Competition.

Figure 4: A company overview of salesforce.com

Figure 5: A brief analysis of the CRM industry

A better visualized example can be seen from Starbucks’s stock pitch presentation done by Pershing Square Capital Management:

Figure 6,7, 8 & 9: The analysts did a research on coffee as an investment category and also added some notes on Starbucks’s market share and growth

Figure 10 & 11: The pitch also includes some findings on the China market

2.3. Investment Thesis

Investment thesis is a definitive statement answering the question of ‘Why should this stock be invested?’. There are 3 elements deciding a stock whether the stock is worth investing or not: 

1. The enterprise’s quality: Stable revenue growth in the long run
2. Catalysts: Special events generating more/less return
3. Valuation: Discounts for investors as the market undervalues the stock

Stock pitch for an interview should include 3-5 key drivers that significantly affect the business. To make your investment thesis stand out, you must be able to tell things that other people are missing or misunderstanding about the firm: How is your assumption different from everyone else? What do you see that sell-side analysts don’t, in terms of the company’s quality, catalysts, and valuation?

Follow these practical examples to help you in developing your own investment thesis:

Figure 12 & 13: Salesforce.com’s investment thesis – this part is much more detailed than the investment thesis summary at the beginning

Figure 14: Logitech’s investment thesis

2.4. Catalysts

Catalysts are especially important if you are making a shorter-term investment recommendation. Hard catalysts should be given priority; but you can always make use of a mix of both. If you are considering which company to pitch on, go with the one with the most concrete and dominant catalysts.

Figure 15: Salesforce.com’s catalyst analysis

Figure 16, 17 & 18: Sony’s catalyst analysis

2.5. Valuation

In the valuation part of the pitch layout, candidates are required to present the different models they used and give an explanation of the logic behind the assumptions driving these models. 

There are basically two types of methods in valuing a company: the relative valuation and the intrinsic valuation approach. They are commonly used in PE, ER, and M&A in order to gauge a company’s current market value so analysts can assess whether it’s undervalued or overvalued. The relative valuation approach includes comparable company analysis and precedent transactions. Discounted cash flows (DCF) is the most frequently used valuation model in the intrinsic valuation approach. 

Comparable company analysis

The comparable company analysis method compares a company with other public companies with similar size and the same industry. It looks at the ratio of EV/Sales, EV/EBITDA, EV/EBIT and P/E. It is important to find the right comparable companies with the same industry, size, growth rate, margin and revenue. Furthermore, the metrics will vary depending on the stage of a company: EBITDA/EPS is used for mature companies while gross profit/revenue are utilized in value early-stage companies. 

Bloomberg or Capital IQ are great paid sources of company information, but if you are looking for a free option, check out Finviz. Comparable company analysis is based on the assumption of similar multiples of companies in the same industry. No matter how easy it is to calculate with available data, there are still some drawbacks of company comparables. The valuation could be affected by temporary market conditions or non-fundamental factors. Besides, it is quite difficult to find comparable companies for diverse factors. 

Figure 19: Gilead’s comparable companies analysis

Precedent transactions

In the precedent transactions method, the valuation of a company is compared to other companies that already have M&A transactions. This approach uses the same multiples as company comparables with typical metrics which are EV/Sales, EV/EBITDA, E/EPS. However, precedent transactions are based on price paid by purchasers for a business while company comparables are based on traded market value. This method is used to value a private company that does not have public trading comparables and evaluate market demand for acquiring a company. However, this approach is rarely perfectly comparable and the past transactions can not totally reflect the total market conditions. 

Discounted cash flow

The discounted cash flow method estimates the value of a company based on its future cash flow. DCF analysis helps calculate the present value of expected cash flows using a discount rate. Compared with the two methods above, investors prefer DCF since this method can project how much money the company will generate in future. If the discounted value of the future cash flows are equal or greater than the initial investments, investors will consider the opportunities. Vice versa, alternative models will be applied. And depending on the purpose of investing, investors will deliver their own decisions on whether to invest or not.

 Figure 20 & 21: Gilead’s Discounted Cash Flow

2.6. How to Mitigate Risks

Proposing potential risks as well as ways of hedging them play an important role in making a stock pitch critical and well-grounded. In this section, you are required to evaluate your investment thesis and show any weaknesses or reasons why it may be incorrect. Interviewees who can demonstrate their perspectives on opposing bear or bull thesis, as well as actual solutions, are incredibly valued by recruiters.

It’s essential that risk factors stay specific and relevant to the company. Therefore, a common mistake among interviewees is mentioning risks that are too general – for instance, global recession or the replacement of human roles by technology. The best approach to consider the risks is to invert the catalysts that have a significant influence on the performance of the stock, such as the failure in achieving the quarter earning goal or an M&A transaction. 

Interviewees should also provide a section on how to eliminate, avoid or reduce the consequences of these risks. The obvious option for an equity pitch is to use call/put options, or stop-loss/ stop-limit orders to cap your losses at a specific percentage. However, you can also propose the utilization of other securities to mitigate the risk. In long pitches, the worst-case scenario is also worth noting.

Figure 22: Logitech’s Investment risks and mitigants

Figure 23: Gilead’s risks and mitigation

2.7. Conclusion

This part is quite self-explanatory. Don’t forget to bring everything to a logical conclusion by demonstrating how your point of view differs from the market and what the upside of your investment idea is. 

3. How to Do a Stock Pitch?

Now that you are clear about the basic structure of a stock pitch, we are going to move on with how to do a stock pitch. Whether it is an at-home research or a time-constrained stock pitch with 3 to 4 hours of study on an assigned company, there are several essential stages that should not be overlooked. 

3.1. Understand fund strategy

Applicants are more likely to ace an interview if the investors/interviewers actually consider their investment proposal. What makes them consider buying a stock is its suitability for their investment strategy. Therefore, the first rule of thumb for candidates is to learn about the fund’s assets under management (AUM), style, holding period, strategy, and type of holdings. 

Interviewees might fail easily if they pitch a gold-mining company to a technology-focused fund or pitch a common stock that other businesses are more acquainted with. Pitching a short stock to long-only funds, pitching a small cap business to large-cap funds, or including technical analysis in fundamental-research funds are all classic rookie mistakes that interviewees should avoid. 

Another tip is to steer clear from sectors that are highly specialized or have distinct methodologies of accounting/ valuation, such as the oil & gas industry or commercial banks, unless the fund shows obvious interest and specializes in them. Some industries are more likely to match the fund’s approach than others. For example, you can quickly identify some overvalued and overhyped software and biotech startups that can be excellent “short” candidates, but it’s difficult to look for mature, undervalued firms that should be invested in the long-term like chemicals or industrials. 

Interviewees can instead research companies’ strategies in the following sources: 

• Fund’s website or blogs that follow hedge fund’s 13Fs closely such as InsiderMonkey or ValueWalk are useful sources for finding company’s information.
• SEC filings (13F filing) on the SEC website includes quarterly reports on funds and investment institutions with at least $100 million in assets under management. 
• Insights can also be fetched from networking with college alumni, friends, past colleagues, LinkedIn. 
• Headlines on target funds’ latest activities from Bloomberg, Wall Street Journal or Financial Times. 

3.2. Choose an idea with careful research

When it comes to company research, there are two approaches:

• The fundamental analysis approach looks at revenue, valuation and industry trends. This approach is probably used by the majority of hedge funds with medium and long-term investments. 
• The technical analysis approach leans towards trends, support resistance, fibonacci retracements and volume analysis. 

We recommend interviewees to go for a firm that is less well-known and is not frequently covered by funds so that portfolio managers could be interested in and might actually consider investing. This is also an opportunity to provide well-considered views that other analysts might ignore. Hedge fund or other investment fund portfolio managers will not consider investing in a mainstream stock like Apple, Microsoft, Tesla, and so on. They value outstanding candidates who could add more value in a presentation. 

Sales volume, sales growth, market size & growth, margins, new product lines, new product cycle, price hikes, cost increases, and mispriced balance sheet items are some of the main factors (key drivers) to examine when evaluating a firm. A mid-cap firm with 3 to 5 main drivers is preferable. If there are too many drivers presented, the investment thesis will be too lengthy and tedious for the evaluator to read. For example, don’t select a firm that has 20 separate product/ service lines or businesses that require various detailed assumptions and complicated projections. Consumer/retail industries are good to choose from because revenue is determined by the number of locations and average sales per store, and forecasts are easy to make.

3.3. Present a stock pitch

The stock pitch may take 10 to 15 minutes (for presenting 10 to 15 slides) during the interview, and evaluators could raise their questions at any point throughout the presentation. Expect various responses from your audience. Without a heated discussion, a stock is not a reliable investment. Therefore, aim for a back-and-forth conversation.It is necessary to prepare a list of answers for possible queries you think that recruiters may ask. 

On top of that, you should learn by heart all the key drivers of the firm, such as industry trends, rivals, and revenue and profit drivers. Ensure that you have made perfect slides with strong references to back up your presentation. In addition, if candidates make a mistake, they should maintain a humble and honest demeanor. 

It’s natural to become anxious when presenting something that has taken days or weeks to complete. Avoid being excessively defensive, since this might come off as arrogant. If you are not sure about something, admit it upfront. Then, after the interview, offer to look it up and follow up with them.

4. What Makes a Good Stock Pitch?

We recommend the following to make your stock pitch stand out from your peers’: 

• Story lines in the beginning of each slide make investment ideas coherent with grounded evidence. 
• Showing a difference with thought out ideas especially in valuation, catalysts, risks and how to mitigate them. 
• Be honest, willing to accept feedback and open to being challenged by interviewers through many questions and cases. 
• Make a good impression through excellent communication skills such as speaking clearly with appropriate body language. 
• Most importantly, practice, practice, PRACTICE! You cannot perfect a stock pitch in a matter of one day or two. It’s about constantly learning, receiving feedback and correcting. Prepare two to three pitches and make sure you know how to deliver your pitch. Investment and stock pitch competitions are ideal places to practice in front of a live audience, some of which might be your future employer. 

5. Stock Pitch Competitions for Undergraduates

If you are an undergraduate wanting to pursue a career in investment research, you might want to check out some of the programs that we list down below. A lot of universities provide their own stock pitch competitions; however, there are also regional and global contests with more chances to rival international contenders. Pull a team of enthusiasts and put yourself out there for the best real-life experience in the following competitions:

• Young Investors Society Regional Stock Pitch Competition
• Young Investors Society Global Stock Pitch Competition
• Undergraduate Stock Pitch Challenge, hosted by the SC Johnson College of Business, Cornell University
• Global Network for Advanced Management Investment Competition, hosted by Yale School of Management
• UWFA Stock Pitch Competition (for students from all Canadian universities)
• Universities’ competitions: University of Kentucky Stock Pitch Competition, UBS China Stock Pitch Challenge, Global Investment Society’s Pure Alpha Stock Pitch Competition (for USC students), etc.