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Play Stock Analyst…For Real: How to Profile Companies

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4 min read

Obsessed with a stock sector and think you’re ready to be exclusive with one ticker in the bunch? Okay. But which one?

Let’s say you have a hunch that legions of consumers will snap up the new smartphone model you bought last month or the oddball fashion trend worn by two-in-three kids on your neighborhood playground. Is the sales potential you’re anticipating enough to drive profit growth? Supporting evidence to round out your rising-sales theory may be the distinguishing factor that turns your stock crush into love— you just need a little more convincing.

To find support for your case, you might rely on the deep bench at analyst firms. After all, they have equity models that plug in sales, operating margins, and other factors. To use the models most effectively, analysts attempt to project potential earnings outcomes by tweaking all the relevant factors, boosting some, downplaying others, depending on business conditions. For instance, sales of widget “X” are up 10%, advertising costs are decreasing by 1%, and operating margins are increasing by 2%—simply, a sample basket of analysis levers that could impact overall valuation. Now, what if you had the opportunity to pull a few levers on a stock you already know a little bit about? You do, thanks to the Company Profile page, on thinkorswim®.

Need An Edge?

For fundamental stock-pickers, it’s technology that democratizes stock analysis. You’ll be smart to explore a range of professional research before you jump. But isn’t it empowering to know that your own projections can factor into your decision?

For active traders, the Company Profile page, which uses data, commentary, and forecasts from independent, third-party firm Trefis, is one way to bring in fundamental analysis to a chart-obsessed approach. For instance, let’s say technical factors seem to indicate the time’s right for entry and you’re sure your sales hunch is dead on. But what if in reality, the hot product featured in a Super Bowl half-time commercial only adds 3% to the company’s bottom line? What if you pulled the trigger on the trade before you bothered to pull the Company Profile lever? It certainly could cost you more to change your mind about the stock now.

Too Matchy-Match

The Company Profile tool might help you narrow candidates for pairs trading. When two companies move in lock step, they’re said to be “correlated.” When one of the stocks diverges in price from the other and correlation breaks up you might buy one stock and short the other (synthetically sell with plans to buy back at a lower price).

You do this because you’re hopeful that the stocks will again converge and resume “normal” correlation. So, a chart may show that a pairs trade looks great, but the tool could help you understand if there’s too much risk in one business over the other.

Rank And File

The Company Profile tool might also help you compare “generals to soldiers.” First-tier companies (generals) tend to serve as sector proxies, with typically lower volatility. This may leave them undesirably high priced for your entry trade.

However, you might look for the 2nd- and 3rd-tier companies (soldiers) in the same sector that potentially have room to grow. Do they have similar business units than the generals, and a similar makeup of those units? Are the growth projections of those units what you’d expect?

Finer Details

Feeding data to the tool, Trefis (that’s the third-party researchers we mentioned above) provides an in-depth view of a company’s financial state. Their data details what products and services are currently driving a company’s cash flow, the aggregate valuation of those categories against the current market price, and its net cash reserves or debt obligations. Not only can you view different divisions and sub-divisions of a company’s revenue, but you can also view and edit a variety of forecasts for each division. These forecasts are defined on a symbol-by-symbol basis, allowing for a specific view into the finances of every available company in the database.

You’ll see edited forecasts flow back to the overall computation to give you a view of how changing a projected revenue stream will affect the overall valuation of the company. Then, you might compare the personalized projection to both the overall projected value and the current market price to look for potential directional trading opportunities. The tool can’t pick your stocks, but it can help you validate or disprove your assumptions.

Give It A Pull

To use the tool (figure 1), start from the Trade page of thinkorswim. Type a stock symbol in the upper-left box. If the tool is available for that stock, the “Company Profile” button will appear top right of the page. Click to bring up the tool.

  1. On the blue vertical bar, click the division of business you’d like to analyze.

  2. Notice the right column showing “most important forecasts for this division.”

  3. Drag estimates of these forecasts (the “levers”) based on your own findings, for instance the belief there will be increased demand for a certain product. By moving that lever up slightly, you can see the impact it would have on the valuation estimate.

thinkorswim Company Profile page

FIGURE 1: thinkorswim Company Profile page, accessed from the Trade page. For illustrative purposes only.

Personal Attention

Call 866-839-1100 and request a platform demo. An Active Trader Specialist will call you within two business days for a demo tailored to your trading experience.

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Pairs trading requires frequent monitoring. Investors should consider the risks of both the long side and the short side of a pairs trade before placing any orders. The two positions are subject to their own unique risks including unlimited risk on the short side. Past performance of a security doesn’t guarantee future results or investing success.

TD Ameritrade, Inc. and Trefis are separate, unaffiliated companies and they are not responsible for each other’s services and products.

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Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

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