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    Important Equity Research Terms with Examples

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    6 views13 pages

    Important Equity Research Terms With Examples

    Uploaded by

    Aryan Hate

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    of 13

    Het Parekh

    Important Equity Research


    Terms with Examples
    Het Parekh

    For aspiring analysts and


    seasoned professionals alike, a
    thorough understanding of equity
    research terminology is crucial for
    navigating this complex domain.

    This post delves into essential


    equity research terms, providing
    examples to enhance
    comprehension.
    Het Parekh
    1. Coverage Universe:

    The coverage universe


    encompasses the specific group of
    companies or industries that an
    analyst or research team focuses
    on. Analysts typically specialize in a
    particular sector, such as
    technology or healthcare, gaining
    in-depth knowledge of the
    companies and trends within that
    domain.
    Example: An analyst covering the
    technology sector may focus on
    companies like Apple, Microsoft,
    and Amazon.
    Het Parekh

    2. Due Diligence:

    Due diligence refers to the rigorous


    process of investigating and
    evaluating a company's financial
    health, management capabilities,
    and competitive landscape.
    Analysts conduct due diligence to
    assess a company's investment
    potential and identify potential
    risks.
    Example: An analyst evaluating a
    potential investment in Tesla would
    conduct due diligence on its electric
    vehicle production, battery
    technology, and regulatory
    environment.
    Het Parekh

    3. Discounted Cash Flow (DCF) Analysis:

    DCF analysis is a valuation


    methodology that estimates the
    intrinsic value of a company by
    projecting future cash flows to the
    present. Analysts use DCF models to
    assess a company's worth and
    determine whether it is undervalued
    or overvalued.
    Example: An analyst valuing a retail
    company would project its future
    sales, expenses, and cash flows to
    determine its intrinsic value and
    compare it to its current market
    price.
    Het Parekh

    4. Earnings Estimates:

    Earnings estimates represent analysts'


    predictions of a company's future
    earnings per share (EPS). These
    estimates are based on factors such as
    historical performance, industry
    trends, and management guidance.
    Example: An analyst covering a
    pharmaceutical company might
    estimate its future earnings based on
    the projected sales of its new drug
    pipeline.
    Het Parekh

    5. Key Performance Indicators (KPIs):

    KPIs are quantifiable metrics that


    measure a company's
    performance and health. Analysts
    use KPIs to assess various aspects
    of a company's operations, such
    as profitability, efficiency, and
    market share.
    Example: A retail analyst might
    track KPIs such as sales per square
    foot, inventory turnover, and
    customer satisfaction to evaluate
    a company's performance.
    Het Parekh

    6. Peer Group Analysis:

    Peer group analysis involves


    comparing a company's financial
    performance and valuation
    metrics to those of its industry
    peers. This analysis helps analysts
    identify the company's relative
    strengths and weaknesses.
    Example: An analyst evaluating a
    technology company would
    compare its financial ratios, such
    as P/E ratio and gross margin, to
    those of its industry competitors.
    Het Parekh

    7. Price Targets:

    Price targets represent analysts'


    forecasts of a company's stock
    price within a specified timeframe.
    These targets are based on the
    analyst's assessment of the
    company's value and future
    prospects
    Example: An analyst covering a
    biotechnology company might set
    a price target of $150 per share,
    reflecting its belief in the
    company's potential for
    breakthrough drug approvals.
    Het Parekh

    8. Sector Rotation:

    Sector rotation refers to the


    cyclical shift of investor
    preference towards specific
    industries or sectors. Analysts
    monitor sector rotation trends to
    identify potential investment
    opportunities and risks.
    Example: An analyst might observe
    a sector rotation into technology
    stocks as investors anticipate
    increased demand for digital
    products and services.
    Het Parekh

    9. Stock Ratings:

    Stock ratings, such as "buy,"


    "hold," or "sell," represent
    analysts' recommendations on
    whether investors should
    purchase, maintain, or sell a
    particular stock. These ratings are
    based on the analyst's assessment
    of the company's risk-adjusted
    return potential.
    Example: An analyst might
    upgrade a stock from "hold" to
    "buy" if they believe the
    company's recent product launch
    has significantly increased its
    growth prospects.
    Het Parekh

    In conclusion, these essential


    equity research terms provide a
    foundation for understanding
    the intricacies of this field. By
    mastering these concepts,
    analysts and investors can make
    informed investment decisions
    and navigate the complex world
    of equity research.
    Follow me on LinkedIn for
    more such insightful content
    on Finance

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