What does the competitive landscape look like?

What is the industry’s historic growth rate and how is its outlook?

What are the barriers to entry?

What are key drivers for industry growth, and what risks are present?

What competitive advantages can firms leverage in this industry? I’m fond of IBISworld’s industry reports due to the incredible depth of their market research - the analysts explain industry regulation, M&A activity, economic drivers and key markets, and much more.

A seemingly infinite amount of research can be done when analyzing a stock. We can forecast thousands of factors to predict how they would impact a company, we can try to understand how hundreds of competitors interact in the industry, we think endlessly about the psychology of other investors in the marketplace and construct sensitivity analyses to quantify our level of certainty on any specific valuation. The reason I’m writing this post is to share a commonly used framework to evaluate a stock and build a stock pitch that can be used as a foundation for many further analyses.I personally use a top-down approach when analyzing stocks, beginning with industry research, continuing with company research, and concluding with a valuation. Understanding the industry that a company operates in is fundamental to projecting its future success - some questions to ask are:This phase of research serves to increase my awareness of the industry. If the industry seems to provide what an investor seeks (growth or stability), it’s time to begin researching the industry’s players and begin evaluating whether one will invest in the market leader or the underdog.A fantastic resource to begin this next stage of research is a company’swebsite. All public companies will have an investor relations portal with links to quarterly earning calls, press releases, etc. The purpose of these portals is for management to explain the company roadmap and future plans to potential investors as clearly and comprehensively as possible, usually using graphics or photos for clarification. Investor relations resources can be complemented with 10-K and 10-Q filings from sec.gov (IR portals will likely link to these filings anyway).SEC filings are standardized which makes them easy to compare between companies. Management will reflect on performance (commenting on any interesting occurrences in the financial statements) and explain their strategy for the future; this qualitative discussion is very helpful when trying to understand what happened in certain accounts. These filings are also easy to compare over the years to see if the company has historically met their goals for guidance provided to investors.One method to expose trends in accounting statements is to crunch ratios. Is significantly higher inventory year-over-year normal with expanding sales or does it indicate an inventory management issue? Are margins increasing or decreasing? How has the capital structure changed? It’s important to think critically about these ratios and askthey’re changing as they are.It’s important to understand the key drivers behind the firm’s future financial performance and how strategic business decisions could impact these drivers - are significant sales made overseas where political regimes or currency risks could affect the business? Is there a monopoly in the suppliers for the firm’s top products which introduces a risk of increasing costs?When I gain a comfortable understanding of a company’s products and strategy and how it stacks against competitors, it’s time to jump into valuation. Valuation is a culmination of the understanding that has been gained thus far in order to project future performance and quantify your assumptions into a target stock price. The current market stock price should theoretically reflect the assumptions of all other investors in the market - all of their projections should be priced in. If your assumptions vary from the market consensus, your valuation will either produce an upside potential indicating that the stock is undervalued, or you may show that a stock is overvalued.There is lots of reading to be done on various valuation methods.When it comes to a stock pitch, it’s all about summarizing all of the key findings into an appropriate length of time. The key bits of information to always include are the industry’s outlook, the firm’s competitive advantage within the industry, the key drivers behind the firm’s financial performance, and the reason why your analysis suggests a target price for the stock that’s different from the current market price for the stock.