Why is ProThinker able to add value to Investment Research?
ProThinker provides stock valuation that is objective, accurate and verifiable.
Objective – Valuations carried out by analysts may have upward bias because of the fear of offending the management of listed companies. Since our reports are quantitative-based, we are able to provide you with reports that are objective.
Accurate – It is possible to value stocks based on different methods. For example, stocks could be valued based on their earnings, sales, cash flows, book values or dividends. However, valuing a stock by different methods will give you different values. Take for example Apple Inc. These are the different values of the stock based on different methods.
Depending on which method you choose, Apple’s stock could be grossly undervalued or overvalued. The range of values is too wide to be useful for investors.
ProThinker also uses multiple methods to value a stock. However, instead of giving you many values, we test all the different combination of indicators and give you the one combination that best explains the stock price. Usually, no single indicator can explain a stock price sufficiently. For example, some investors may look at a particular stock’s Price to Earnings while some may look at Dividend Yield. Therefore, a stock’s price is often affected by different indicators at the same time. Rather than guessing which indicators explain the stock price, we let the data find the combination of indicators that mathematically explains the stock price best. This combination approach almost always explains the stock price better than any single indicator.
Verifiable – When valuation indicators are used by itself rather than in combination, different values arise, and investors are forced to choose which indicator to use, often without back-testing to make sure that the indicator they choose has explained the stock price well. We plot our chosen composite indicator together with the past stock prices so that you can verify the accuracy for yourself.
To illustrate, the Composite Valuation Indicator for Apple’s stock is plotted below. Anyone looking at this chart can see how effective the Composite Valuation Indicator has been in explaining past stock prices and therefore can have the confidence to rely on it to predict future prices.
How is ProThinker able to add value to Investment Research?
Complementing your research department
We can come up with reports for thousands of stocks while a stockbroking firm’s own research department can only handle a limited number of stocks due to high costs of employing analysts. Therefore, our quantitative research can complement your research department, allowing you to offer analysis on many more stocks thereby increasing your stockbroking business. We can customize our reports for you, including the type of quantitative analysis that you want to see, and publish them under your name for you to provide to your clients.
Our quantitative stock reports could also act as an independent check to your analyst’s valuation for stocks that you do cover. Analysts, being human, may overlook a particular aspect of a stock, which may prove to be important. There is also a tendency for analysts to herd together in their valuation and target price. Our quantitative reports provide an independent source of challenge to this group-think as our conclusions do not depend on what other analysts are forecasting.
Our comprehensive stock reports cover all pertinent aspects of a stock. Some portions of it could be incorporated into your own qualitative research reports.
- Return on Equity
- Quality of Earnings
- Piotroski Score
- Altman Z-Score
- Cash Flow Analysis
- Technical Analysis
Allowing you to make tough calls
Analysts rely on cultivating a good relationship with the management of listed companies they follow. Therefore, it is difficult for analysts to make tough calls such as coming up with low valuation for the stock and recommending sell recommendations. Our valuation methodology could be incorporated into your own research reports as a third-party analytics tool, using your own estimates for earnings, sales, cash flow, dividends, etc., allowing you to come up with appropriate stock valuations.
Generating stock ideas
There are so many companies listed in the stock market. Yet stockbroking companies tend to focus only on the same few stocks. With many other analysts covering the same stocks, it is much more difficult to find attractive buys as the market for these stocks are efficient. Why not focus on other stocks that other analysts are not covering, to provide better value-add to your stockbroking clients?
Which are the ones your research team should focus on to generate buy and sell recommendations? We believe that the starting point is an effective stock screening tool.
Our combination stock valuation approach allows us to do stock screening in a much more effective way. The usual method of stock screening is to look for stocks with low Price to Earnings or Price to Book, etc. However, different criteria will produce different lists of “cheap” stocks. You will have to choose which list to rely on. If you want stocks that are cheap on all criteria, you end up with very few stocks or nothing to buy. You would also be unnecessarily filtering off stocks that are attractive. For example, a cheap technology stock may have low Price to Earnings but its Price to Book will be high. Our stock screens, which uses the combination method to value stocks, gives you ONE consistent list of interesting stock ideas to do further research on.
Use the search box on the right to search for examples of partial analysis on stocks (e.g. key “India” into the search box). If you want to see the full report, please fill in the request form below.