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126 lines
4.3 KiB
Markdown
126 lines
4.3 KiB
Markdown
# Stock Analysis Framework
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This reference provides detailed analysis frameworks for evaluating stocks across different markets.
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## Fundamental Analysis Checklist
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### 1. Financial Health Check
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- [ ] **Revenue Growth**: Consistent revenue growth over 3-5 years
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- [ ] **Profitability**: Gross margin, operating margin, net margin trends
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- [ ] **Cash Flow**: Positive operating cash flow, free cash flow generation
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- [ ] **Balance Sheet**: Debt-to-equity ratio, current ratio, interest coverage
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- [ ] **Return Ratios**: ROE, ROIC, whether they exceed cost of capital
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### 2. Business Model Analysis
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- [ ] **What does the company do?** Clear understanding of business and revenue sources
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- [ ] **Competitive Advantage**: Does the company have moat (brand, scale, network effect, patent)?
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- [ ] **Pricing Power**: Can they pass cost increases to customers?
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- [ ] **Customer Concentration**: Is business dependent on few large customers?
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### 3. Management Evaluation
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- [ ] **Capital Allocation**: Does management deploy capital wisely (reinvestment, dividends, buybacks)?
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- [ ] **Insider Ownership**: Do managers have significant skin in the game?
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- [ ] **Transparency**: Clear and honest communication with shareholders
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- [ ] **Track Record**: How have they performed through market cycles?
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## Valuation Methods
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### Price-to-Earnings (P/E) Ratio
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- Compare to:
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- Historical P/E of the company
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- Industry average P/E
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- Market average P/E
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- Growth adjusted P/E (PEG ratio) < 1 often indicates undervaluation
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### Price-to-Book (P/B) Ratio
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- Particularly relevant for:
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- Financial institutions (banks, insurance)
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- Capital-intensive businesses
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- Companies holding significant assets
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- P/B < 1 may indicate deep value (but always check for asset quality)
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### Discounted Cash Flow (DCF)
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- Project future free cash flows for 5-10 years
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- Calculate terminal value
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- Discount to present value using appropriate discount rate (usually WACC)
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- Best for companies with stable predictable cash flows
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- Sensitivity analysis is important (change growth and discount rate assumptions)
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### Dividend Discount Model (DDM)
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- For mature companies with stable dividend history
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- Gordon Growth Model: Value = D1 / (r - g)
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- Focus on dividend growth rate and sustainability
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### Relative Valuation
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- Compare key multiples with direct competitors
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- Identify why the company should trade at premium/discount
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- Common multiples: EV/EBITDA, P/S, EV/Sales
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## Analysis by Market
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### US Market Analysis Considerations
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- US markets are generally more efficient
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- Focus on institutional holdings and analyst coverage
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- Consider currency impact for non-US investors
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- Tech sector dominates, so growth stock analysis skills are critical
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- Earnings reports and guidance heavily impact prices
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### Hong Kong Market Analysis Considerations
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- Strong link to Chinese economy
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- Influenced by both global and China factors
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- Higher weighting for financials and property
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- Pay attention to southbound/northbound capital flows
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- Liquidity varies significantly between stocks
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- Some companies have different share classes (A/H, different voting rights)
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### A-Share Market Analysis Considerations
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- More retail investor participation, higher volatility
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- Policy changes have significant impact
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- Focus on government industrial policies (five-year plans, etc.)
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- Sector rotation driven by policy and macro cycles
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- Pay attention to regulatory risks
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- Consider Shanghai/Shenzhen/HK Stock Connect flows
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## Risk Assessment Framework
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### Systematic Risk (Market Level)
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- Interest rate changes
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- Economic recession
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- Geopolitical risks
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- Market liquidity risk
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### Idiosyncratic Risk (Company Level)
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- Industry disruption
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- Competition
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- Management fraud/error
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- High debt default risk
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- Product/market failure
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## Margin of Safety
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- Always require a margin of safety between intrinsic value and market price
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- Typical margin: 20-30% for high-quality companies, 40-50% for lower-quality
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- Larger margin for more uncertain businesses
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- Never overpay for growth hype
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## Final Recommendation Categories
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- **Strong Buy**: Deep value, strong fundamentals, excellent risk-reward
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- **Buy**: Good company at reasonable price
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- **Hold**: Already fairly valued, no urgent need to buy or sell
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- **Watch**: Interesting company, waiting for better entry point
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- **Sell/Avoid**: Poor fundamentals, overvalued, significant risks
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