A Beginner’s Guide to Stock Qualitative Analysis: When you think of studying a strong company, the first image that comes to mind is most likely of a high-aptitude individual locking himself in and crushing figures all day. Furthermore, figures such as Total Revenue, Operating Profitability, Margin Net Profit, and so on may be brought to your attention. Is that, however, all there is to investing?
Today, we’ll look into qualitative analysis, which is the other side of the coin. Here, we’ll go through what Qualitative Analysis of Stocks is and how to do it.
What is a Stock Qualitative Analysis?
The use of non-quantifiable data in qualitative analysis is used to assess a company’s investment possibilities. This data includes things like management quality, stakeholder satisfaction, ethics, brand value, and so on. Soft data is another term for this. Intangible aspects are dealt with in this soft data.
Quantitative analysis is the term for what we are used to. The emphasis is on numbers, specifically ratios derived from financial statements such as the income statement, balance sheet, and cash flow statement. Quantitative data may be crunched by artificial intelligence, or simply put, computers, which is the most significant point of differentiation. Qualitative analysis, on the other hand, necessitates human intervention.
What Is the Importance of Stock Qualitative Analysis?
Even if we are seated in front of a computer screen, looking at a jumble of figures that make up critical company data. It’s crucial to remember that people, not data, are in charge of these businesses. Humans are the ones who generate and purchase the company’s services and products. As a result, looking at the company solely as a collection of figures is not an option.
Take Coca-Cola, for example. Every day, the firm sells 1.8 billion bottles. If we just look at figures like these, the company may be the best. Few would have predicted, however, that consumer concerns would shift to include health prospects.
How to Conduct a Qualitative Stock Analysis?
Here are some of the features of a firm that should be included in qualitative stock analysis and what investors should look for before investing:
1. Management of the business
It is critical to consider who is in charge of the company. CEOs, Boards of Directors, Chairmen, and other executives fall into this category. If a new CEO is chosen tomorrow, determining whether or not he is the proper match for the organization is critical. Someone with prior experience successfully running a company in the sector is always preferred over someone fresh to the industry.
Additional background checks would involve evaluating their educational history, management style, and so on. A CEO who does not believe in automation or additional innovation, for example, could be a risk to the business.
However, these variables must not be regarded as conclusive evidence. For example, if one were to appraise Apple in its early phases simply based on Steve Jobs’ educational credentials, one would dismiss Apple as a possible prospect. Steve Jobs, on the other hand, was a marketing genius.
The management team’s competence can also be assessed based on how they respond to a crisis. Consider the case of Sony. A data breach affecting 77 million PlayStation users occurred in 2011. Rather than try to hide it, the CEO personally apologized, and customers were offered a free subscription to PlayStation Plus as well as the identity theft insurance.
2. Employee Sense of satisfaction
Employee happiness is critical since it is only then that their superior services will be passed on to customers. We can analyze this by looking at the company’s employee turnover ratios, for example. A high turnover rate in a corporation could indicate an unpleasant or toxic work environment.
This is why firms often provide the best amenities and a strong autonomous HR department to handle employee problems.
3. Customer satisfaction with the supplier
It is also critical that the corporation treats its suppliers fairly. It goes a long way to have a good relationship with your suppliers. Amazon might be used as an example once more. Using their platform, the company replicated a tiny company’s tripod product.
4. Customer satisfaction
Every step a firm performs is aimed at ensuring client happiness in some way. We’ve all seen examples of companies taking even tweets on social media platforms very seriously to safeguard their brand image. Nobody wants to do business with a firm that treats its consumers badly.
According to Investopedia, companies that delight their clients generated four times the value between 1994 and 2007.
5. Other considerations
In qualitative analysis, there are various more aspects that play a vital role. These include a company’s competitive advantages, patents, brand value, and industry moats, among other things.
Even though these elements aren’t strictly quantifiable, they play a vital function in a company’s analysis.
6. Participation of Institutions
When huge investors or private equity firms invest in a business, they do so after considering all quantitative and qualitative considerations. This indicates that they have completed their research. As a result, huge institutional investors are a good sign for a company.
However, the data required for quantitative analysis is difficult to come by. Computers can be configured to produce data or analysis in a fraction of a second when it comes to numbers. Stock qualitative analysis, on the other hand, is difficult and time-consuming to perform.
Analyzing whether the information is relevant and what isn’t is another factor. Company websites, business journals, annual reports, shareholder meetings, and other sources are some examples. A thorough analysis is difficult to come by, but it is only comprehensive when both quantitative and qualitative elements are taken into account. Let us know about your qualitative analysis experience in the comments section below. Good luck with your investments!