How to Research a Stock in Stock Rover Part I – Deep Dive

Overview

This is the first of a three part series designed to show you how to effectively use Stock Rover to research a stock. We will be using Microsoft (MSFT) as our example company.

The three part series focuses on researching a stock in the following sequence:

  • Part 1 – Doing a deep dive on a stock using the Insight Panel
  • Part 2 – Comparison with peers using the Table
  • Part 3 – Price performance and technicals using the Charting facility

Research Reports

I should begin by mentioning that Stock Rover provides a Research Reports facility, which is designed to package much of the data available in the Insight Panel in an easy to read and portable PDF format.

You can see the current research report for Microsoft here.

Free weekly research reports are available to all users for the Dow 30. With a subscription to Research Reports, the rest of the 7000+ stocks in the Stock Rover universe are available and research reports are generated with current, up-to-the-second data, rather than weekly.

A Research Reports subscription is $49.99 per year if you have a Stock Rover subscription or $99.99 per year without an accompanying Stock Rover subscription.

And with that out of the way, let’s dive into Microsoft.

The Insight Panel

The best place to begin stock or ETF research is with the Insight Panel. The Insight Panel has five separate subsections: Summary, Visuals, News, Analysts and Statements.

You can enter your desired ticker in the ticker box and can fire up the Insight Panel from the Stock Rover Start Menu as shown below.

Start Menu - Insight Panel

Let’s start with the Summary section.

Summary

The Summary section of the Insight Panel displays many important things about a stock in a condensed and efficient form. As we view the Summary section we can see scores, analyst estimates, price performance, valuation, growth and more.

For many of these things we will use other parts of Stock Rover, such as the table and chart to delve more deeply in parts 2 and 3 of this blog series, but there is a lot here all in one place, as you can see in the screenshot below.

Insight Panel

Profile and Description

I always like to begin research on a company by looking at its profile and description. We can quickly get a sense of the of the company, what it does, its size, where it is located, whether it is a dividend payer or not, and whether the short interest in the stock is high or low. I can also take a quick look at the homepage to see how the company represents itself.

Insight Panel - Profile

Warnings

Once past the profile, the next thing I focus on is Warnings.

The Warnings Facility looks at 29 separate issues of potential concern and indicates which ones a given stock is afflicted with (if any) and to what degree. The warnings cover a variety of issues concerning financial and operational performance, price technicals and analyst estimates.

The beauty of the Warnings facility is many of the things it detects would be difficult for an investor to spot on their own, without dedicating a lot of time and research. The Warnings facility does a great job of raising flags related to possible areas of concern.

For Microsoft, there are currently no warnings, which is very good. To get an idea of what the facility can do, let’s take a look Amazon, which has five warnings.

Insight Panel - Warnings

When we click on the warnings link, we get the following details.

Insight Panel - Warnings Detail

The 5 issues issues of concern for Amazon are high short interest (red = high severity), earnings misses, and a differential between GAAP and Pro Forma earnings (orange – medium severity). It also has declining EPS growth and high stock-based compensation (yellow – low severity). Together it all sounds a bit worrisome.

So does any of this correlate to real world performance? The short answer is it certainly can. Let’s take a look. We can use the ratio chart facility and see how Amazon has performed relative to Microsoft.

Ratio Chart

In the above ratio chart, it is clear that Amazon has performed far worse that Microsoft. It’s a pretty sure bet that the issues raised by the warnings facility have contributed to Amazon’s underperformance vs. Microsoft.

Scores

The summary scores tab uses Stock Rover’s scoring algorithms to score the stock vs. all other stocks across the North American stock universe. The nice thing about this panel is it shows not only the current scores, but how the scores are changing over time.

Insight Panel - Scores

For Microsoft we can see that the value score is above average and has been pretty consistent over time. However both the growth and quality scores have improved and is among the best vs. all other North American stocks.

The Piotroski score is used to evaluate financial health. The scale runs from 0 to 9. Companies under 3 are considered to be financially weak. Companies with a score of 8 or 9 are considered excellent. Average companies score in the 4 to 6 range. Here we can see that Microsoft is among the best, with a score of 8. We also note that their score has improved over time.

Finally we can look at the Altman Z score, which is a measure of a business credit strength. Microsoft has improved dramatically over time and is currently at 8.2. Any value over 3.0 is considered to be a very sound business financially. Microsoft clears that bar by a wide margin.

Visuals

Visuals is probably the most underappreciated facility in Stock Rover. Out of the box, it provides seven powerful tabs to look at data. It is also customizable so you can change tabs or add new tabs. Each tab allows you to arrange tables and charts with any content in any order so you can see the data you want display in the way you want to see it. Let’s take a look.

EPS

The first tab is Earnings per Share or EPS. We can view a 5 year chart, a 10 year chart or a max chart which goes back to 2007. We have selected 10 years.

Here you see a concise display of sales, EPS and cash flow in chart form and in tabular form. In the chart, Microsoft’s stock price is superimposed in the background.

Insight Panel - Visuals - EPS

A quick look shows that Microsoft’s sales and cash flow were trending slowly upwards prior to 2017 and then accelerated further upwards in 2017 along with a sharp increase in earnings.

Price led the trend, turning solidly upwards in 2016. The price action shows that somehow the market knew good things were happening at Microsoft. Lately it seems price may have gotten ahead of sales and earnings growth. A sharp pullback recently has brought things closer to trend.

There is a lot you can learn from this tab.

Dividends

The Dividends tab shows that Microsoft is a steady and reliable dividend grower. The statistics panel shows that with a dividend coverage of over 4x, confidence in Microsoft’s dividend safety is high. That coverage level, along with Microsoft’s earning growth, lends confidence in their ability to continue to grow their dividend at around 10% per year, which has been their historic rate.

Insight Panel - Visuals - Dividends

Monthly Returns

The Monthly Returns tab shows the performance of Microsoft across the months of the year. This is helpful to determine if there is any marked seasonality in a stock. Strong seasonality trends could be exploited to improve the timing of entry to, or exit from, a stock.

From an absolute return point of view, Microsoft is a good bet almost any month you choose to buy, with the possible exception of February or May and the definite exception of September. On the other hand, October 1st would be a great date to think about adding some capital, if you decide Microsoft is worthy of investment.

Insight Panel - Visuals - Monthly Return

You can also see the monthly returns relative to the S&P 500 benchmark. We can see that Microsoft has historically outperformed the S&P 500 every month except September and December.

Insight Panel - Visuals - Monthly Return vs S&P 500

Additional Visual Tabs

There are four other tabs in Visuals that provide a lot of useful data. We are not going to cover them in depth here because we will use other parts of Stock Rover to delve more deeply into these areas in part 2 and 3 of this blog series.

I will briefly discuss each of the four tabs so you can see what they contain.

History

This is the history tab, showing how a lot of key financial information has evolved over time for a company. The first item is a fundamentals chart with sales, net income and P/E over time. That is followed by a series of 5 tables containing a wide variety of historical data.

The tables in sequence are the summary income statement, the summary balance sheet, the cash flow statement, the profitability table and key per-share data.

Insight Panel - Visuals - History

Technicals

This is the technical tab, showing key technicals for a stock’s price performance. The last component (not shown) is a table showing the company’s technical indicators vs. a number of peers.

Insight Panel - Visuals - Technicals

vs Peers

The vs Peers tab shows a company vs. a number of its peers, across a number of interesting metrics such as valuation, growth, fair value, returns and price strength and drawdown risk.

Insight Panel - Visuals - vs Peers

vs Industry

The vs Industry tab shows a company vs. its industry across a number of interesting metrics such as risk and return, growth, profitability and dividends.

Insight Panel - Visuals - vs Industry

Roll Your Own

As I mentioned previously with Visuals, you can easily create your own custom tabs. You can include any tables and charts you want to see and display them in whatever order you would like. The journey begins with the Create a New Visual Tab option.

Insight Panel - Visuals - Create Tab

Analysts

The Analysts tab provides a wealth of information about how the analysts are feeling about Microsoft. Unsurprisingly, we can see that Microsoft is a widely followed stock, with well over 20 analysts following the company. We will begin with the top half of the display, shown below.

Insight Panel - Analysts (top)

The 12 month average target price for Microsoft is just under $360, which is over 40% above its current value. I would caution that analysts tend to be an overly optimistic lot. They are also slow to react to adverse news. So the real value of these targets is twofold: relative to other companies, and in relation to previous values of the target price.

An example of a relationship vs. a similar company is the analysts’ target price for Apple. Below is a snippet from Apple’s analyst estimate page.

Insight Panel - Analysts (Apple)

We can see Apple’s target is 37% above its current price, making Microsoft, at 42%, a slightly better value of the two in the analyst world.

Regarding changing price targets, a key thing to look for is analyst revisions up or down. Since analysts tend to be slow to revise targets, negative revisions are really negative in that they may understate the amount of deterioration in the outlook, and should be cause for concern. Conversely, positive revisions are a good thing for the same reason.

The bottom half of the analysts panel shows this information.

Insight Panel - Analysts (Bottom)

Here we see that for Microsoft, the revisions for next year’s earnings are slightly higher than vs. 90 days ago. However on the flip side, the revisions for this year’s earnings are slightly lower. We can also see the analysts’ revisions for the last 30 days have all been in the positive direction. Overall I would rate Microsoft’s situation as slightly bullish for the stock.

Statements

The Statements tab contains financial statement information in tabular form. You can look at annual or quarterly data. It can be viewed in ascending or descending order date order. You can also look at statement data in percentage terms and in delta terms from the previous period. Finally, you can look at all of the company’s filings with the SEC from this tab.

Summary Table

We will begin with the Summary table, which contains a concise look at the Income Statement, Balance Sheet, Cash Flow Statement as well as profitability and dividend information.

Insight Panel - Statements - Summary

Note the yellow banner across the top indicates that Stock Rover is reporting on calendar years, even though Microsoft fiscal year ends in June. Stock Rover does this so that when you are comparing financial statement data across companies, you are always comparing like periods, that is apples to apples.

Let’s focus on profitability. I am always interested to see how the key metrics of operational and capital efficiency evolve with time. I am looking for businesses that are continuously improving.

In Microsoft’s case we can see the Operating Margin dipped from 2012 to 2017 and then made a dramatic ascent. Similarly, Return on Assets, Return on Equity and Return on Invested Capital have all made similar journeys. This is clearly a business going the right direction.

Income Statement

Switching over to the Income Statement, I see a couple more things I like. The 10 year revenue CAGR (Compound Annual Growth Rate) is around 11%, but expenses grew at only 6%, and within that, R&D (the good expense) grew faster at 9.4% vs. S&GA which only grew at 4%. All of this together results in a Net Income after taxes CAGR of around 18%. That is a great corporate performance.

Insight Panel - Statements - Income Statement

Last but not least, the diluted shares are slowly shrinking at a little over 1% per year, meaning they are buying back more shares that they issue. One of the things you worry about with a tech company is excessive compensation via options, resulting in major shareholder dilution. Microsoft does not have that problem.

Balance Sheet

Turning to the Balance Sheet, we can see that current assets greatly exceed current liabilities and the gap is growing. It’s the same story with long term assets. The net result is stockholder equity is growing. There is nothing to worry about here. They have a great balance sheet.

Insight Panel - Statements - Balance Sheet

Cash Flow Statement

Unsurprisingly, it is the same story with cash flow. Both cash flow and free cash flow are heavily positive and growing. Overall, Microsoft has a great set of financials.

Insight Panel - Statements - Cash Flow Statement

Conclusion

Ok, we have done the first part of the analysis of Microsoft. We used some, but not all of the features of the Insight Panel. We can see that businesswise, Microsoft’s performance is impressive. But how does it stack up with its peers? In the next segment of this series, we will dive into Stock Rover’s Table and Ratings and try to answer that question.




Comments

Rose says:

Thank you for this great tutorial! Lots of info here that I was not aware of. Really helps in sizing up a company

abhishek khatri says:

Thanks for the amazing explanation on every section of the insights panel. I look forward to the next two parts and more of such posts in future.

Jacques Hennequet says:

Excellent, tutorial, thank you. I realized how much I underused the Visual Tabs within Insight.

Kos Mich says:

Congratulations!!!! Excellent tutorial. I would be obliged if you did more so that we discover the little “secrets” of StockRover.
Thanks one more time!!!!

Walter says:

Excellent tutorial; looking to dive into part 2 and 3 after dinner.

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