Mock Equity Research Interview Question Pitch Me A Stock

For candidates preparing for an equity research interview, the “Pitch Me A Stock” question will almost surely be asked at least once throughout the interview process. It is an important question that highlights the candidates who can articulate investment ideas and show an understanding of the market.

Now this is a very common question in all finance interviews but especially for equity research analysts going for that equity research role this is 100 percent going to be in your interview so you really have to be prepared and hit the nail on the head with this one because it will filter out the candidates that are really really good who actually know what

They’re talking about and those who are just faking it so this is a very important question and you should be very prepared for it okay so the pitch needs to be concise and actionable emphasizing the reasoning of the investment over the presentation of the idea the most common mistakes people make are they offer no final recommendation they go with all maybe it

Will happen this is this you want to be confident and get actionable you want to offer an actionable recommendation in addition sometimes they offer unnecessary details they go into some tangent and that’s just completely unrelated to the recommendation or they spend too much time on the pitch you know a pitch should usually be about two and two minutes to two and

A half minutes but a lot of people go five six seven minutes it’s just too long you want to be very clear with what you want to communicate don’t spend too much time on the unnecessary details i mean if you’re pitching mcdonald’s or a blue chip company you don’t need to give that a background everybody knows what mcdonald’s is go straight to the thesis and really

Communicate what your investment proposition is and at the same time you know usually some people just pitch with no real data backing their assumption they assume all you know this company’s undervalued okay well why is it undervalued oh well because you know just you know look at look it’s been like the stock hasn’t moved at all in like the past five years well

Maybe as a move because of something else you know you got to really offer financial data to support your recommendation and some people unfortunately just don’t okay so it is best to prepare between two to three investment ideas with at least one being short in investment banking when this question is asked usually candidates can offer a valuation range based on

The different valuation techniques that they use however with equity research you need to stand by fixed price target because in that role you are setting a fixed price target so you have to stand by it and defend it so you have to spend some time making these projects and be ready to defend evaluation assumptions that you made if you use a discounted cash flow

Model to run that you know maybe you want to print out that dcfs ball to show it to the interviewers if you use it a comparable companies analysis you got to really refer to the multiples that you use and why did you make that assumption that this was the average versus that but for more senior candidates as well you should be remembering the financial ratios of

That respective company and this is really important just to communicate the overall state of the company and how you view that company because this reveals a lot if account if an analyst were to you know choose one financial ratio to really describe a company what would it be right and that reveals a lot about how that respective investor you know views companies

Who views their investments you know do they care a lot about debt maybe they’re just going to cite a leverage ratio or do they care a lot about you know like youth assets you know the quick ratio or current asset ratio what is it going to be right so you know remember your financial ratios and make sure that you’re communicating aligning that with your investment

Pitch so that’s very important so let’s look at the pitch itself there are three pillars to this answer there’s one the statement to the thesis and three the valuation now there are many ways to look at the answer some people can go into you know oh split it up into catalysts and all that kind of stuff but this is very simple think of it as three core pillars i

Want to make a statement this company is undervalued or this company is overvalued and therefore it is a long or short investment opportunity my thesis the reason why it is is blah blah blah and then the valuation i feel that this company is valued at this level because of that okay and we can go into that we can split that up so for the first pillar the statement

You know you start off i believe that company x is blank and will blank due to its blank you know i believe that abc corp is undervalued and it will realize it’s a tangible value the moment the market really realizes its sector potential and the diversification opportunities of that respective company or whatever it is so you really want to kind of offer just a

Quick abstract of what you’re going to talk about and then really in that first statement you want to focus on the financial and business profile you don’t want to cite any numbers you don’t want to just start off you know with that with the with the price projection in my opinion that really opens you up to just why because if you start going and you’re like you

Know i believe that this company is valued at 50 values 52 dollars and the interviewer just cut you off why right all of a sudden you practice all this time to go in this flow and you just get caught off guard so you kind of want to ease into that you want to start off it’s undervalued and i believe that it will realize this value through either you know you cite

Some business profile characteristics you know the do to you know sector evaluation or you know the realization that shareholders are going to you’ll reward the company for its diversification from a geography perspective or from a financial perspective you know the company is increasing its return on investment and shareholders will reward that in the following

Quarter right and so by communicating how they’re going to realize this company’s going to realize you know you’re either under valuation or over valuation assumption you can then go into the second statement which is the thesis so now in the thesis this is where you know the core is this is the bread and butter this is really where you communicate that yes i

Know what i’m talking about yes i know i’m talking about this company and i want to appear professional right so you want to offer three reasons in support of your recommendation so you want to say no i believe that this company has made you know this recent acquisition and now that it’s fully integrated within operations there will be synergistic benefits that

Will originate from it i believe blah blah blah and i believe love will lie and at the same time you want to also offer you know three risks that you recognize you know i recognize that this company has traded at this valuation due to you know the recent legislation that has passed but at the same time that has not really impacted the fundamental valuation the

Company but more of how the market views it the longer-term cash flow that is generated from this business should be rewarded in the future and therefore by buying at this lower price we are buying this at a cheaper level than what it should be worth or something like that right so you want to position you know the three risk the three counter arguments to your

Investment in a way in which i recognize that blah but blah is the reason why i’m confident that my investment is correct and so that’s really how you structure the thesis you go three reasons why and three risks with regard to that investment but also following up so you kind of want to hamburger it you want to offer great stuff you then want to offer the bad

Stuff and then you want to end it off you know covering up that bad stuff with another good stuff so you know hamburger it and then the third pillar is the valuation so now you make that final recommendation so considering these three characteristics so these three investment strengths i believe that this company is valued at fifty-two dollars a share even though

It trades currently at $40 a share now i got this price target by conducting a comparable companies analysis and looking at it’s a evita ibadan multiple or it’s evita a bit multiple i looked at the median and mean range within the comparable universe and i’ve decided that based on an average eveyday but a multiple of ten it currently trades at eight and therefore

If we reevaluate it will give us a price of $52 a share or something like that right so you kind of want to back it up with the fundamentals and of course you know in during the questioning after this after the pitch you want to make sure that you can speak to those valuation those valuation assumptions right and then once you offer your valuation recommendation

How you got to that using you know the fundamental methodologies you then consider the catalysts now i recognize that it’s currently trading at $40 a share if it’s valued at 52 how can this company get to that what realistic event could really trigger that revaluation in the stock well the upcoming quarter seen is very favorable analysts are projecting a higher

Eps ratio or whatever it is you know you want to you want to kind of operate two to three catalysts that will really push that the current valuation to your projected valuation so that’s you how you ended so you know the first so the first pillar go back here the first pillar is a statement i believe it’s undervalued overvalued and you want to kind of bring in

A business or financial characteristics the second pillar is a thesis this is where you offer your three statements why you believe in your recommendation and you cover the three easy counter arguments the three risks to your investment the valuation the third step you finally offer your projected value how you got to that and how it’s going to get to that in the

Medium term or in the short term okay so it’s this should be able to minutes long so there this requires a lot of practice to get it in two minutes be smooth and to be clear and concise you really kind of maybe you want to write out a script you want to think about it you want to start at five minutes and start cutting boards down but you really you have to focus

On why and how you came up with that recommendation why is this investment good and how is it going to get to that level so stick to larger companies as it frees up frees you up from spending time on the company background and gives you more time to develop your actual thesis now some people believe that okay you know we’re going to go with a really really

Tiny company that they don’t don’t know anything about and so they’re going to ask some very simple questions know don’t put yourself in that position because that means that you have to spend more time explaining the company even during the question period which means that you have to really do more in-depth research with regards to the business and financial

Characteristics of the company rather stick with mcdonald’s they could stick with the blue chip companies now you know are trading at you know five ten fifteen percent discount and and you know just really talk about big broad macro factors and that’s a very very simple pitch that you can kind of produce and so also to remember the dimension risks as it needs to

Be a very balanced recommendation so if you weren’t in the second pillar and during the thesis if you weren’t to talk about risks and you just you’re just going to say oh i believe that this is going to happen this is going to happen this is going to happen and that’s why it’s going to cost 50 is caught it should be at 52 dollars rather than 40 well then that’s

So unbalanced and really when you’re looking at that pitch and you’re looking at that potential candidate you want to make sure that ok this candidate if he’s put in front of management or ease put in front of some investors some potential investors who are going to source business for our company he is able to appear very balanced and unbiased you don’t to be

Very biased because people are not going to trust you you know you’re a snake oil salesman and you’re just all yellow this is great it’s going to solve everything for you know looking at this side and looking at this side i believe that still this is the better side therefore we should make that investment right so you want to appear balanced because that is what

They’re looking for they’re looking for a balanced recommendation that you can defend now the follow-up so post the pitch they the interviewers will probably focus on the macro and industry-wide issues right so if you talk about mcdonald’s they’ll talk about you know the health issues or the talked about you know the the buyback program or whatever it is that you

Know it’s kind of industry-wide you know they’re not going to delve into the itty bitty of you know their performance in the northeastern segment of the united states that’s not what they’re going to be focusing on they’re going to be focusing on broader topics right and so if the firm has been in the news recently either reporting its latest quarter or announcing

A new strategic move this will probably also be asked about so you know just make sure that if it’s a round earning season that you’ve looked at the latest earnings earnings information and your updated right and then probably as you can see in bolded red this means very important if you don’t know the answer to some question that they ask don’t lie be open and be

Upfront about it the best the best way i’ve been in that situation where i take i take nearly 10-15 seconds i think about it it’s all quiet a little awkward but still you know i’m there i’m just you know what i’m not too sure about that i don’t want to give you the wrong answer i can try to take a stab at it if you would like but i can probably get back to you with

Regards to that answer you know and then probably the bill okay you know take a stab at it and they want to see how you handle that environment they want to see how you handle that situation where you don’t know something and so you don’t want to overextend yourself if you don’t know something just be upfront about it try to take a stab at it but be very logical

Don’t be like oh you know i believe it’s about you know just offer a relatively simple answer that cannot be made fun of later on and you’ll be okay and they’ll move on to the next question and hopefully you’ll know the answers the next question okay in some instances the interviewer may take the opposite side and against argue against your pitch this is to put

You in a position where you defend your position now once again it is important to be concise and clear you shouldn’t be repeating your pitch but rather responding to the points presented by that counter-argument so if all of a sudden the interviewer is like okay you know what you’re keep using the dogs as an example so i’ll use it so you know what if mcdonald’s is

So great you know why it’s blah blah blah you know don’t go well again just looking at the real estate and all that no no focus on the points that he offered right and again like if you don’t know how to answer those points then yeah you should probably just repeat your pitch and hopefully they don’t realize it but if you have studied and done your job correctly

Which means preparing for the interview then you should be able to answer those questions and therefore you should be focusing on those points now another follow-up and this is probably an important file question is what is the short-term catalyst or risk what’s the most realistic short-term catalyst or risk so you can brief briefly outlined the catalysts and risks

During the initial pitch but it is important to identify and speak to the most significant ones when they follow up on that so you know probably again from mcdonald’s is going to be one of the health concerns you know you know consumers are you know against theirs there’s a brand recognition with with regards to the millennials has declined significantly because

You know people want to eat healthy you know how is mcdonald’s going to really fit in this new age of healthy eating when they continue to make so much money off these cheap burgers right and so you want to position yourself so that you anticipate that question so when you’re preparing for your pitch you should not only just be practicing that pitch but thinking

About the follow-up think about what is probably the most realistic short-term catalyst and the most realistic short-term risk and be able to speak to those as well and then probably another question is the ceo question and this this i’ve gotten myself if you could ask the ceo of that company of mcdonald’s anything you want what would it be and this is another

Question to filter out candidates who simply practice a random pitch the night before versus those who actually understand the company so throw your research first of all you should be remembering the ceos name and you should think of this question and it’s very important because as an as an individual investor myself when i ask myself that question it really cuts

To the core of what’s the biggest problem the company’s facing you know i don’t want to ask the ceo about what he does on the golf course i’m gonna ask him what is the biggest problem he’s facing how he’s going to tackle it so it really kind of refines the previous question which would the previous follow-up question which is you know what’s that catalyst or risk

That i want to talk about you know and so that’s very important this is a great question that a lot of interviewers will ask especially at the more boutique firms because that not especially with equity research what you really you do as you kind of progress within the industry as you gain more and more exposure to management themselves right you get to speak with

The management the company right and so when you’re following that respective sector you’re going to be speaking to a lot of management in that sector and so this is a very good way to kind of get a glimpse of how this respective candidate is going to view management and how they really extract the value from management so this is a very important question which

You should be preparing for other than that some important things to remember you got to practice that print pitch so you want to make sure that you’re practicing it either in front of the mirror you’re writing it out you know in the script or practicing in front of your girlfriend or your parents or whatever it is you know you also want to consider the counter

Arguments to that you want to make sure that when you you pitching this you think about okay i’m going to play devil’s advocate what’s the downside to this investment proposition and you also want to focus on the actual points that you are making so when you are writing that script or you’re making that initial pitch and you’re practicing listen to the words you

Know don’t think about oh i just got to get through it no don’t get through it make sure they communicating what you want to get right because at the end of the day they’re going to be focusing on that investment proposition it’s not about being smooth but it’s about being very logical and being a very intellectual investor and so that’s what they’re looking for

They’re looking for a curious individual in comb through different companies and look for the key questions that need to be asked and then finally you got to break down that pitch into bullet points i think this is the the best thing i can i can tell you the day before an interview you know you write it right the ten key words that you want to get across in that

Page the ten things that you want to say either it’s phrases or words and so when you’re kind of in that interview position and you know you’re feeling a little anxious and you’re a little nervous and your hands are all sweaty you know you just you really your mind is going to center on those ten or fifteen words and so it really kind of give you that marker to

Go from word one to word to the word three and so that will kind of help you get through that pitch other than that that’s pretty much it as always if you did enjoy the video please like and subscribe to the channel for more if you have any questions i would love for you to just comment below and i’ll be sure to get back to you as soon as possible as well i have

Other investment banking and equity research interview questions on my channel so i do recommend that you watch that for more so other than that like a subscribe to the channel and have a great day guys

Transcribed from video
Mock Equity Research Interview Question – Pitch Me A Stock By FinanceKid