Fundamental Research

Fundamental research is used to develop price targets and investment thesis for our Buy List stocks.

Discounted Cash Flow and historical Market Multiples valuation analysis is used to derive a high and low price target for all Buy List Stocks. Our analysis includes sensitivity analysis to validate consensus earnings growth estimates in order to forecast target multiples and to test consensus assumptions.

We use a Cash Flow Return on Investment (CFROI) model to estimate each stock’s upside potential based on growth in revenues and cash flow return on capital. We use the following investment thesis criteria to determine the initial attractiveness of fundamentals for all Buy List Stocks:

• Improving business outlook such as accelerating revenues and earnings; 
• Rising return on invested capital demonstrating competent management;
• Positive earnings estimate revisions as the market re-evaluates the company; and
• Valuation that is at a discount relative to improving fundamentals

Should the stock's fundamentals prove compelling based on the above, we subsequently conduct further fundamental analysis to assess the company's positioning relative to:

• Cyclical conditions; 
• Competitive environment; 
• Brand franchise; and 
• Technological advantage