Jessie: You're listening to Market MakeHer, the self-directed investing education podcast that demystifies the stock market from her perspective.
Jess: We're your host. I'm Jess Inskip, the resident finance expert. Been in the industry for about 15 years now. I was licensed for 10 of those years and gave those up to post financial content on social. You can catch me on CNBC and Fox Business Weekly sharing my market views.
Jessie: And I'm Jessie DeNuit, your guide on this journey to financial empowerment. I convinced Jess to start this podcast with me to teach me how the stock market works and I'm taking you along on the journey with me, which means I ask all the questions you are thinking. Make sure we actually understand what is going on and more importantly, I keep Jess away from financial jargon land.
Jess: Yes. Thank you. Today by popular demand and requests from one of our listeners that Jessie met over the weekend, we are going to show you how to analyze a stock. I'm going to take Jessie through my process of looking at a stock as an investment opportunity and all the tools and resources that are available to you.
Jessie: I already see all of the rabbit holes emerging that we're going to go down today. Oh, we're already there. Drink that liquid that makes you smile. Here it is.
Jess: Two housekeeping items before we dive in. First, if you have not already subscribed to the Market Make Her newsletter, please do it at MarketMakeHerPodcast.com. That's her H-E-R.
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Jess: And second, if you find our content helpful, please leave us a review. If you have not already, it really helps our mission of spreading financial literacy a lot. Okay, Jessie, are you ready to dive into stock analysis?
Jessie: Yes, I am so excited for this episode and not just me, but a lot of people I've talked to have also been wanting to know how to pick a stock, how to look at a stock, how to analyze the stock. So yeah, let's get in. How do we start to look at a stock?
Jess: We start with our investment thesis. We had an episode on that, episode number eight. So how to write an investment thesis and use stock screeners. But now we're going to validate our investment thesis or our stock idea and actually analyze the stock. So we use tools and screeners to figure that out. We're going job hunting. We're trying to find the best job for our money to literally go to work. So put your mind in that place as if you were looking for a job. You want to make sure that you're going to grow with that company. You want to make sure that it aligns with your values. You utilize all of our resources to make sure that we find the best job for our money, put it to work,
Jessie: time to grow up money and get a job.
Jess: I like it. Okay. So, investment thesis. We're going to start with the one that we already talked about in episode number eight. So how to find stock ideas. We went through using a stock screener and how to come up with your investment thesis. One of the investment thesis that I have for the year and going forward is automation, but also the gig economy. We talked about that, you know, like too many job openings, not enough people to fill those jobs to bring some equilibrium to the labor market. You need increased productivity and that's with like AI, right?
Jessie: A lot of people are like, oh no, AI is coming for our jobs. It's like, no, it's probably coming for the jobs that people don't want anymore, like aren't getting filled anymore. So we should probably try to look at it as a positive thing.
Jess: Yeah. The web revolution was all this access to data. Now we have access to all this data. So now I think it's data curation. And so, it takes experts to filter through the data and you can utilize AI and really amplify your job. Second piece of that investment thesis though, is the gig economy. So. Like we talk about this healthy, resilient consumer, and that just means that you have an income, you have a job, and you have savings. That's a healthy consumer. The gig economy is something that hasn't really been around in past market downturns or times of turmoil or we're trying to figure out if there's going to be a recession, meaning like you couldn't have an Amazon affiliate link.
Jessie: You couldn't go drive for Uber Eats or whatever.
Jess: Exactly. So a stock that fits both of those investment thesis, in my view, is Adobe. So that's what I want to look at today. Oh, cool. Anytime you get an idea, you want to validate it. You have a really cool idea, but in order to prioritize what you're going to work on, if you've done any type of project management, even you have to go through this analysis and that's what we're going to go through today with Adobe. I'm going to take you through the hard way. And the easy way, the easy way is there's an analyst opinion. Analysts will do everything for you. So the qualitative side, the quantitative side, fundamental analysis, give you a price target and you can look at all of that as well. If you want to look a little more in the nitty gritty, we'll go through that too. Cause that's what I personally do. But I do think if you understand the nitty gritty and we'll scratch the surface, we won't go too deep in that rabbit hole. It helps you understand what you're looking at when you read those analyst opinions. Okay. You know, we're data people anyways.
Jessie: Yeah. I love all the data. So. You can't scare me.
Jess: I love that. Let's go. I'm going to start with CNBC's website. This is CNBC.com. I am a pro subscriber, but you can actually see this if you're not a pro subscriber, but if there's some things that you don't see it's because I am logged into this first and foremost, when we do our qualitative analysis, that just means we want to answer some very basic questions about the company. We want to know, do they have a competitive advantage? What do they do? How do they make money? What is their management and their leadership like? And like, what are some industry trends? Now we already answered some of that already. We know that Adobe has Photoshop, they have Premier, they have this whole product suite. From my research, they have a freemium model, which is, we live in this subscription world now, and the way that you grow your top of funnel is through freemium models. And Adobe is doing that, which is giving them like good product. penetration across direct to consumer and like direct to businesses. So that's the competitive advantage that I've done with my research, which is just like reading through the news, which you can do here.
You always start with the qualitative, seeing the quality of the company basically, what they have to offer. Yeah, exactly. And that's why whenever I talk to somebody who's picking stocks for the first time, you always say start with something you know, because then you're going to be a little more familiar with what they offer. You work in data and analytics, Jessie, maybe we should start it with Google or things like that, because you know where they drive their revenue from. Because you're buying a piece of a company, you're gonna analyze if you wanna own a piece of that company.
Jessie: Makes sense, yeah. You're preparing for a job interview basically, like what do they do? Right, yeah, you're doing your research before you go in for the interview.
Jess: Exactly.
Jessie: What the company's about, what their values, their mission statement, all the things they might ask you about in the interview or that you might wanna ask them about in the interview.
Jess: Yeah, that's the qualitative part. That's going to be on the security profile. This is on CNBC.com. It's also, I've got Fidelity's app that also has what they do summary and news. So your brokerage firm has all of this information for you. We know what they do. They serve content creators, students, workers, marketers, educators, enthusiasts, communications, consumers. Great. So we've got some good background information on the company and what they do and who they're serving. Exactly. What I do like about the way CNBC sets it up is if there's any news stories. that were related, you can watch them and see what other people are saying about it. I'll go back and forth with Fidelity's. They also have news too. The way that news feeds work is there is a tag for the stock symbol. And if the stock symbol is tagged in any type of newswire, then it will show up in a newsfeed. And that's the way it works with every brokerage firm. So we're just seeing the headlines where this stock has been mentioned. That can create a lot of noise. We're investing for the long term. We're not trading.
Jessie: Take it into consideration, but. don't necessarily sway you. Okay, so first we start with the investment thesis that we have and we're looking at the Adobe stock. Our investment thesis was about automation and the gig economy and we're doing some qualitative analysis by pulling up this specific stock ticker symbol in whatever brokerage account you have and we're looking to see what the qualitative analysis would be, which is just the background information of the company, competitive advantage, what do they do, how do they make money, what's their management leadership style like. What are the industry trends? That's like all the background information we're looking at. Like you would before you go into a job interview about a company that you're looking into working for, right?
Jess: Exactly. Great. Yeah. So we're ready for the job interview now. We're prepared. I want to know if I want to work there. Let's look at some of the fundamental analysis. And we've talked about this before when we talked about how a stock makes money on episode three, what is a stock? Back to CNBC, I'm going to just go to their key stats. That's just like your high level. This is what it's done for the day. It's range, beta, we talked about that. This moves more than the stock market. I expect that because this is a technology stock. Beta of one means this is the benchmark for the stock market, which is the S&P 500. This is a 1.33. So it basically moves 33% more. It's a more volatile roller coaster.
Jessie: Right. Yeah, a little bit of a more exciting ride.
Jess: It is a more exciting ride, which I expect for technology stocks. They are always more exciting. Okay. Same with technology roller coasters actually. That makes sense.
Jessie: Well, and so we don't look at the 52 week high and low because we're in this for the long term or Is that, does that give us a gauge on like if it fluctuates a lot in the last 52 weeks?
Jess: You may want to say, okay, this has been up almost 60% year to date. We're in September, but that's a lot. You need to compare these numbers to other things. So earnings, think about this, you've got your job. You want to make sure that you can grow with that company. We're going to see if this company is growing too. Super simple. This is going up. Awesome. That's what I want to see. But what I like about CNBC's view is they also give you the projected. earnings and they give you the P E ratio, the trailing 12 months and the forward 12 months. And we need to explain exactly what all that information is, but this is, this is very helpful to me.
Jessie: Yeah. P E ratio is the one that always comes up and then I always like forget what the right P E ratio is and how to measure that.
Jess: This is how you see if a stock is expensive or not. At first you might say Adobe is very expensive. It's over $500 a share. It's $532 a share right now. That's not what I would look at to see if it's expensive. I think something's expensive if it's too much for how much growth it's expected. So is it underpriced or overpriced? That's what we're really looking at. PE helps you figure that out.
Jessie: Oh, okay. How?
Jess: The math. It takes the current stock price and it divides it by the earnings per share. So that's your PE ratio. Literally price divided by earnings. Earnings are quarterly. So this has trailing 12 months. So what was it the last four quarters? And then we're going to look at where is it going to be for the next 12 months? Forget the math. I'll just tell you how to look at it. So we're going to look at it from a funnel approach. I don't like looking at the trailing 12 months because that's already happened. What I'm caring about because I'm making an investment and I want to put my money to work is, is this going to grow or is it perhaps too overly priced? The forward PE The technology sector is 31, but the software sector is 42. Adobe is 30.5 times next year's earnings, is the way that I would say that. That's lower than the software industry and the technology sector. It's higher than the overall market, but so is all of technology. We really could do a whole episode on PE ratio, but all you're looking for is this lower than its sector.
Jessie: Okay. So since Adobe is at 30 and that's lower than both the software industry and technology sector, we're saying that it's probably an okay time to buy it, right?
Jess: Yeah. You can just jump over here to its growth rate. It expects to grow 12.8% within the next year and 20% the next three to five years. So I want that earnings to grow and that would justify a higher PE ratio. the three to five earnings expected growth is higher than the overall market technology sector and the software industry. Right.
Jessie: And since we're planning on holding this investment for a while, looking at the next three to five years makes sense.
Jess: It does. You can look at the one year two and the three to five. You want to see earnings go up and normally the stock will go up with it.
Jessie: So the earnings are going up a little bit. Right. But the stock price went up a lot.
Jess: The market is forward looking. Any AI stocks started to go up because of that promise of value because the stock market says, what is Adobe worth six months from now? They reported earnings last week and they said that their freemium models. That's where I got that data from was their earnings report is growing their top of funnel and they're gathering market share. And so they actually adjusted their revenue. their NNA, so their net new annual reoccurring revenue, their guidance from $460 million to $520 million, another $60 million to their annual reoccurring revenue just from their digital media offering. And so that's what we're looking at though. It's like, yeah, the stock price has gone up a lot this year.
Jessie: I think one of the things people wonder when they go to buy a stock is like, oh, am I too late? Did I already miss my opportunity because now everyone's talking about AI, everyone knows that AI is, everyone's using chat GPT or whatever. Did I miss my opportunity or is there still like momentum where if I buy now, I'm still expected to see growth? And I think that's what we're saying with this one. We're seeing the potential for continued upward momentum and profits, right?
Jess: And this is a technology company. It's a growth company. So I expect them to take their earnings, put it back into the stock, come up with some really cool stuff and drive more profits. reduce their operating expenses.
Jessie: They've already been around forever too, and they just keep finding new ways to grow their technology and keep making money.
Jess: I can see here that clearly the gray line represents estimates, so those are analyst estimates. They're obviously forward looking. So whenever there's some new guidance, they raise their earnings per share target. Blue line means did they beat or miss it? So notice when they started beating how the stock bottomed in Q3 of last year, that was also October of last year, which was the lows of the overall market. So you got to think about that too. And then upward momentum from there. My personal opinion, not financial advice. It's a lower PE ratio. from evaluation perspective, anything in the thirties for technology sectors. And it has positive earnings per share growth expectations.
Jessie: Yeah, it's helpful to see the sector. Do we always see the industry like that too? Because the sector is like a larger, the industry is just breaks it down a little bit further, right? Yeah, subsector.
Jess: See, like we don't even need the jargon. You just need to know what the thing is. That's it. This is the way that you would see. Basically, if something is overpriced or underpriced, if you hear on the market or on finance media, I say it all the time, this stock is cheap from a valuation perspective. So basically I want a P E ratio that's forward looking. So anytime you see TTM that's trailing 12 months, I want to know for the next 12 months. And if it's super high. then you need to justify why it's super high. And the way that you justify that is if it has a higher revenue growth or EPS growth.
Jessie: And in that qualitative analysis we did, maybe they're talking about things they're planning on doing in the future. And we know that they're gonna develop more software or add more integrations or something that could drive sales and demand of the products up that they offer.
Jess: Exactly, that is exactly it. I think that happens with Adobe Podcast. Right now that's in beta mode. We used that last episode. I forgot to turn my microphone on and I recorded with my MacBook the entire time and it sounded terrible but then we put it in Adobe podcast and it fixed it and it still sounded like it had great quality with these mics that I guess we don't even need anymore. That hasn't been monetized so that could translate positively into earnings which means it's not included in this growth factor. So if you see this super high, then you need to justify why you're okay buying that. Okay. That would be a way that I justify it. Okay. That is the hard way of fundamental analysis.
Jessie: So then what's the easy way of fundamental analysis?
Jess: So here they put all of the analysts together. Their highest price target is 660. Their lowest is 428. Basically out of all of the analysts that cover this, it's either a hold by or a strong buy. Fidelity, they do the equity summary score, which is from Refinitiv. And I love Refinitiv's data, 8.8 This is the easy way. I just scratched the surface on some fundamental analysis. There's so much more that analysts do and they assign a rating and a 12-month price target. So we just did the hard way and the easy way.
Jessie: Okay. So fundamental analysis is the third thing we look at when analyzing a stock and that's looking at earnings, our earnings growing. We're looking at EPS. We're looking at revenue. We're looking at profit margins. We're looking at P E ratio. We're looking at all of these things to analyze if the stock is worth buying now, if it's too expensive or not and what the projected growth is. If you don't want to do all of that fundamental analysis yourself, or you're still like learning about how to make sense of it all, just go to the analyst ratings, right? See what the analysts that are like doing this for a living, I've been doing this for a long time, what their aggregated opinions are on the specific stock. Can you see why? Like I know some of them are bulls say this, bears say this, or some analysts are for it and some are against it, right?
Jess: Yeah, absolutely. So, and Fidelity, they have all these research reports. They have the newest ones. So these are from today, September 18th. You can pull up the research reports and it will give you the why. Okay, cool. Usually at the end, it'll say, I feel that this company will do this. This is their headwinds, this is their tailwinds, all the things that you need to come up with. This is their competitive advantage. That's also the easy way. So you can just read the research report. Somebody does that for a living. And I personally like to do both. PE ratio, I'll see that it's undervalued. I will justify it with its revenue exposure, EPS growth, or perhaps that just stops me saying I don't want to buy it from here. But then I'll also validate that with someone else's opinion, like utilize all your resources.
Jessie: Right. All the information is there, so may as well look at it.
Jess: That's the beauty of self-directed investing. You can go into the data as much as you want to, or you can look at the experts, or you can do both. And we didn't talk about ESG, which I think is super, super important. the overall environmental, social and governance. This is an overall leader, their average environmental but social and governance excel and they're a leader in.
Jessie: ESG is important to look at as we go forward. We have access to so much more information about every company's and now we are paying attention. People are starting to pay attention to more to like. What are the company's ethics and values? How are they treating the environment and the products they're making? Considering their ESG score is also probably something to look at for the long-term investment.
Jess: Yeah, it also goes into fiscal policy. So you know how we talked about that when we said how the stock market works and those are those external factors. You'll have the Inflation Reduction Act or certain fiscal policy that incentivizes. some really good ESG practices and they will have incentives to push towards that. That will translate positively into earnings. And that's also another way to find trade ideas. If you're into politics and you see this fiscal stimulus coming in or this act that is going to push towards clean energy, there are stocks that are going to benefit from that. The stock market is literally around you. It's everywhere. It really is. Just got to pay attention.
Jessie: Yeah, that's good. So, okay. When we're looking at a stock and we want to analyze it and decide if it's a stock that we might want to buy or not, we are first going to look at our investment thesis and see if it's a good investment opportunity based on a statement we've come up with based on something we've noticed in the world that's happening. Then we do our qualitative analysis. You do your research on the company. Are they good? What's their leadership style? How are they making money? What are they doing? What's their competitive advantage? And do they have industry trends? We do fundamental analysis, right? Are you gonna say something?
Jess: Oh yeah, I'm agreeing with you. You're on the right track. I'm just like, I'm just smiling because I'm like, yay.
Jessie: So after we have decided, is this the company we want our money to work for to make us some money, we do our fundamental analysis, which is looking at the earnings, P-E ratio, the profit margin, revenue, what are they expected to keep growing over the next two years. And if we don't want to do all of that very in-depth analytical research and looking at charts and numbers and graphs, we just go to the analyst and see what the analysts are saying every tool or platform you're looking at will do some sort of aggregate of all of the analysts that they supply ratings from. You can like take all that into consideration and you can click in there and see like why these analysts are saying that and kind of let that help make your decision.
Jess: Yeah, right. Looking at the glass door reviews, you know, do I want to go in this job? What do people say? Yeah. What are, what are people saying about this employer? The key takeaway is do your homework. And we just did a stock. We can do this with a fund too. If you do want to do a fund to actually be great, someone would leave that in a comment, we'll take that into consideration. If you're commenting, we're more likely to do it.
Jessie: And especially since like we looked at Adobe stock, it is over $500 right now. That is a lot to spend on one share of a stock, like one piece of a company. We know it's in the technology sector. We know it's in the software industry. Maybe you want to look at an ETF that's in the technology sector or Adobe is part of that, but you get an ETF and it's not quite as expensive and you're getting more companies in that little basket that you're putting your money into.
Jess: Yeah. Diversification is key. We talked about one stock. That's a lot of risk. You have one stock. Yeah. We need to do an episode on diversification and portfolio management for sure.
Jessie: Yeah, but it's good to start like getting our minds into analysis. If there's anything relative to what's going on right now or a stock you're like, hey, this is going, I mean, Birkenstock just went public when I saw the Barbie movie and I saw the, you know, choose the Birkenstock or the high heels. And then I saw that they went public. I was like, huh. interesting, but then I did just a tiny bit of research, not any of this level. If I had just thought like, oh, they're on the Barbie movie, they went public, I should buy it. But if I didn't do any research outside of that, I wouldn't know how the company is doing and if it's actually a good investment or not. Don't just blindly buy it. Make sure you're going in and doing your homework, like we said.
Jess: Love it. Yes, agree. Also the IPOs now, that's considered health of the overall market. Little tidbit not related to today's episode.
Jessie: That more companies are going public?
Jess: Yep. Do you know what happens when they go public? Get all the data. Because now they're regulated by the SEC. We got to see their balance sheets and that's where all this analysis comes from.
Jessie: Once again, today we've gone down some rabbit holes. We've uncovered that there are so many tools and resources at our fingertips to help us make better investment decisions.
Jess: Also in the episode equity for this episode, we wrote a list of ways to analyze stocks with some helpful links of what we covered today and some extras. So make sure you check it out at MarketMakeHerPodcast.com and that's her as an HER from her perspective, you know, like with our fun name.
Jessie: And if you found this helpful, once again, do not keep it to yourself. Tell your friends, your family, your therapist, your neighbors,
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Jessie: Yeah. Tell people on hinge, uh, what's up? Your coworkers. Listen to this podcast. Host a girl dinner. Do that and share. Those are coming up. Girl dinner. Yes. Podcast club instead of a book club. That would be fun.
Jess: Ooh, and say your coined phrase. I love your coined phrase.
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Jess: Ooh, yes. Got to put that on some merch.
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Jessie: And just a shout out to all the people making this podcast possible. This podcast is hosted by Jessie DeNuit and Jessica Inskip.
Jess: Produced by Jessie DeNuit and Jessica Inskip.
Jessie: Marketing by Jessie DeNuit.
Jess: Edited by Jessica Inskip.
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Jessie: Yeah, we love you both. And thanks to all of our listeners. We love you as well. And obviously we wouldn't keep doing this without you because it's for you and for me, but also for you.
Jess: Thanks guys. Until next time.
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Disclosures: Investing involves risk. There is always potential to lose money when investing in securities including losing the full amount invested.
Market MakeHer provides educational content and resources for informational and educational purposes only. Market MakeHer hosts and guests are not registered financial advisors and do not provide personalized investment advice, tax, or legal advice. Any information provided on this website or in the Market MakeHer podcast is not intended to be a substitute for professional financial advice. Market MakeHer is not liable for any investment decisions made based on our content. It is important to do your own research and consult with a licensed financial advisor before making any investment decisions.
