This is Part 5 of the series on analyzing growth stocks. Here I will focus on retrieving and entering the relevant numbers from the sources described in Part 4. The post will not cover explanations about or reasons for which data I choose to include in my tracking spreadsheet. The data the I track can vary from company to company, and I will discuss what financials and metrics I include and why in future posts. To access the previous posts in this series, click the links below:
Part 3: Journalist Lawyer Scientist
NUMBERS ARE VERY IMPORTANT
Companies that grow fast and earn profits will be worth more in the future. Investing is all about buying companies that will be worth more in the future than they are today. Analyzing the past performance of a company is crucial, and, while past success does not guarantee future success, it’s one of the best indicators. Today, I will share my process and tool for entering the numbers that I need to analyze a company.
GOOGLE SHEETS AND MICROSOFT EXCEL
I create a Google Sheet for each company that I analyze. A Google Sheet is like an Excel spreadsheet that is stored in the Cloud. There are several capabilities of Google Sheets that I appreciate including the following:
- Stored in the Cloud: It can be accessed and edited from any computer or mobile phone with access to the Internet.
- Automatically Saved Versions: Previous versions are saved, and it is possible to revert to previous versions.
- Link to Google Finance: Stock prices, market capitalizations, 52-week highs, and other statistics can pulled directly from Google Finance via the Internet into the Google Sheet. The values (e.g. stock prices) update automatically but are usually delayed by 20 minutes.
- Permission-based Sharing: Google Sheets can be shared with others. Sharing is permission-based so some people can be given access to edit while others can be given access to view. I use this feature to collaborate on stock analysis with a small group of trusted investors.
Prior to using Google Sheets, I used Microsoft Excel, and either of the two tools can be used effectively to track the financials and KPIs of stocks. If I invest in a company that I’ve analyzed, then I will update the Google Sheet when the new results are released each quarter.
EXAMPLE GOOGLE SHEET
I create a new Google Sheet tab for each company that I analyze. Usually, I just create a copy of another company tab that I think will require minimal editing (i.e. same fiscal calendar and same/similar financial metrics and KPIs to track). To help with my explanation of the process and to hopefully make things clearer, I am making an example Google Sheet publicly accessible to everybody. In addition, the example Google Sheet can be copied or printed so it can be used as a template to set up your own Google Sheets on other companies that you want to analyze. You will also be able to view formulas that I used my clicking on a specific cell in the Google Sheet. As you read the rest of this post, it will be very helpful to have the example Google Sheet open in a separate browser window. I will be referring to it frequently. Note: this example Google Sheet contains information as of 16Mar 2021 for the financial reporting period ending on 31Dec 2020; I will not be updating this example Google Sheet for future periods.
GOOGLE SHEET STRUCTURE AND FORMATTING
As you will see the Google Sheet example has several areas of interest.
Quarterly Data Transcribed from Company Reported Info
The largest section is the information that I’ve transcribed directly from the company’s financial statements as well as other quantitative metrics that were disclosed directly by the company. This section encompasses columns “I” through column “BR” and rows 1 through 35.
The cells that are colored beige contain numbers that I entered in manually while the uncolored cells contain formulas that use one or more other cells for a calculation. The exceptions to this coloring scheme are columns “I” and “J” which are also uncolored; these columns contain the designation of the fiscal quarter and the calendar date of the end of the quarter in a given row. The row containing data for the most recent quarter is highlighted in gray so that it’s shown more prominently. The numbers shown in red (as those in row 32) are numbers for the following quarter based off of company guidance or my own projection.
There may be ways to quickly and automatically import all this data. However, I choose to manually transcribe it because the process of typing in the numbers helps me to solidify my understanding of the company’s financials. Every three months, the company releases a quarter’s information about 40-90 minutes prior to their earnings conference call. I try to update the Google Sheet prior to the earnings calls so that I already have a good understanding of how the quarter went; this understanding helps me to actively listen and think about the company on a higher level while the call is occurring (rather than trying to comprehend the new data and think about the discussion at the same time).
Revenue and EPS Formatted for Year Over Year Comparison
The main section in the Google Sheet has all the data organized by quarter with each subsequent sequential quarter in the row below the prior quarter. I also like to view revenue and adjusted (non-GAAP) earnings per share on a year over year basis so I can “visually eliminate” effects of any seasonality. In the example Google Sheet, revenue is shown in this manner in cells A2 through G9. Similarly, adjusted EPS is shown in this manner in cells A11 through G15.
Tracking Annual Guidance
Most companies issue guidance for the upcoming quarter as well as for the entire fiscal year. I track quarterly revenue guidance in the main section of the Google Sheet in columns “K” and “M”. Usually, annual guidance is first issued after Q4 and then updated or reaffirmed after Q1, Q2, and Q3. Thus, the company has the opportunity to raise annual guidance three times after the initial annual guide. I like to track this annual guidance and changes to it. In the example Google Sheet, I’m tracking the annual guidance in cells A19 through D25.
Long-Term Operational Goals/Targets
Some companies (not all) offer investors an outlook of their long term operating targets (i.e. mainly to arrive at target operating margin levels after the company will have completed scaling the business). Many hyper growth companies invest heavily in Sales & Marketing and in Research & Development to more quickly capture market share (green field opportunities) within their target market(s). This means that their operating expenses such as Sales & Marketing and Research & Development comprise a large percentage of their revenue. As the company scales the business, these percentage drop down and will approach the company’s long-term operational targets (hopefully). Attaining operational leverage is a beautiful thing for a business, and, as investor, I like to monitor the progress. In cells A37 through B35, I’ve entered the company’s long-term operational targets and any changes to these targets. I compare these figures to the actual reported numbers in column “X” through column “AL”. I’ll explain this further in my next post of this series.
Valuation
Valuation is important, but it’s one of the last things that I look at when deciding whether or not to invest in a company. High growth companies are often difficult to value, but a common valuation check is to look at Enterprise Value divided by annual revenue (EV/S). In cells A38 through C44, I’ve calculated the EV/S using several different calculations of revenue (TTM, annual run rate, and forward revenue).
SUMMARY
This post was intended to merely introduce the process and the tools that I use to analyze and track the companies in which I invest. The example Google Sheet in the post is specific to CRWD. Many, but not all, of the tracked financials and other metrics for CRWD are also relevant to other hyper growth companies.
I have chosen to use Google Sheets as my go-to tool for analyzing and tracking my stocks. Other investors prefer to use Microsoft Excel. For example, my investor friend, TheStockNovice, uses Excel to track his companies. It’s a fine alternative. He’s developed an excellent template that can be accessed here.
In the next post of this series, I will delve into the what, why, and how of the tracked financials and metrics for the CRWD example referenced in this post.
The opinions, thoughts, analyses, stock selections, portfolio allocations, and other content is freely shared by GauchoRico. This information should not be taken as recommendations or advice. GauchoRico does not make recommendations and does not offer financial advice. Each person/investor is responsible for making and owning their own decisions, financial and otherwise.