Our Investment Philosophy
At Equisights, our rating system integrates a rigorous analysis of multiple critical factors, providing a comprehensive and actionable assessment. We delve into valuation, risk-return tradeoff, momentum, market capitalization, and forecasted future returns. This is supplemented by a thorough line-by-line financial statement analysis, an evaluation of growth drivers and factors influencing performance, detailed earnings forecasts, an assessment of ESG and key risks, and comprehensive valuation analyses, including DCF, relative valuation, and intrinsic valuation. Additionally, we conduct peer comparisons and ownership activity reviews to ensure a robust and nuanced evaluation tailored for institutional investors.
In-Depth Financial and Risk Assessment
Our investment philosophy begins with a meticulous line-by-line financial statement analysis, which includes both horizontal and vertical financial statement analysis. We conduct detailed ratio analyses to evaluate each company’s financial health, thoroughly examining financial statements, footnotes, press releases, SEC filings, earnings calls, conferences, and corporate timelines. This comprehensive approach includes forecasting sales, earnings, dividends, and cash flow, and comparing historical growth rates to industry peers. Risk is assessed both qualitatively and quantitatively, utilizing models such as Michael Porter’s Five Forces and proprietary data to understand ownership trends and stock return correlations. This helps us determine the key risks and uncertainties in the company’s operations and their expected influence on future performance in the short and long term.
Our Valuation Techniques
The second pillar of our philosophy involves a detailed valuation analysis. We compare companies against their peers on various metrics, including P/E, Price/Sales ratios, EV/Revenue, EV/EBIT, EV/EBITDA, and Price/Book Value. Our peer analysis begins by identifying comparable companies, arranging them by market cap, and reviewing their revenue growth rates, margins, and key metrics. We apply these multiples to Equisights’ forecasts to arrive at implied values and, ultimately, intrinsic valuations. We also analyze stock price activity in relation to sales, cash flow, dividends, and earnings. Normal ratio ranges are established and adjusted based on growth and profitability trends. Apart from the relative valuation techniques, we employ Discounted Cash Flow (DCF) models to determine implied prices and intrinsic valuations. This process helps us establish target prices achievable within our forecasted periods.