Most analysis is done on a single stock and rarely involves contrasting it to similar companies.
The value of peer comparison is well understood, but few people do it because the time investment makes it untenable. If, for example, it takes you one hour to analyze a stock, comparing it to just four peers means a four-fold increase in time.
This time hurdle is what forces most analyst/investors to limit themselves to two-dimensional analysis – vertical (ratios created by going down financial statement/market data at a single point in time) and horizontal (ratios created over more than one period).
The third dimension is peer comparison.
When you take a horizontal or vertical ratio or valuation calculation and you compare it to a group of peers, you are adding a third dimension of analysis.
Let’s say you are using a p/e ratio.You know what it is currently, you know how it ranged historically. You’ve got two-dimensional insight on that value. But when you compare it against the ratios of peer companies, you have more context, more insight.
INVRS was designed for peer comparison with our portfolio-based analysis.
First, it’s a snap to find peers – you can use our research tab or stock screener to quickly assemble a group of related companies (for more information watch our video on portfolios).
Next, with a couple of clicks you can add candidate stocks to a portfolio.
Finally, run the portfolio against all the analysis criteria you want. It takes no more time than doing the analysis on one stock.
Adding a third dimension to your analysis can make a difference on so many levels – it can give you inspiration for new ideas, it can help keep you more objective and give you insight that other analysts just don’t have.
I hope to be reading one of your three-dimensional analyses soon!
If you work with your own investment models you likely use excel to build them, but excel
isn’t ideal for many reasons and it costs you in other ways.
First, you need good data and it isn’t just lying around in
an easy to import format.You’re either
keying it in yourself or paying money for excel downloads.
When you need data from numerous sources – price
information, data from different statements and across multiple years - you
must merge it from multiple sheets. It's an inefficient process which can lead to data corruption.
After all this data is collected and merged, models built
and tested, the net result is one statistic for one company.A stand-alone number without context has
limited use.To be meaningful, you need
to compare it to similar companies.
This is just a sample of the challenges. You need software that overcomes
these problems and is designed for investment model creation.
Surprise! This software exists, it's INVRS. You can get a free analysis report on …
NextEra had good results relative to a group of peers in a factor-based analysis.NextEra has an appealing profitability and income profile.Its price momentum looks decent, with a caveat.Its relatively small size (a small mid-cap) coupled with its industry (renewable energy) further weight the odds that this company could be a strong performer in the future.
The Analysis Overview
I created a portfolio of stocks in the alternative energy sector, looking specifically for companies with a market cap over $1B but less than $4B. This is a sweet spot that offers strong potential for growth but is also substantial enough not to be too speculative.
It's my believe that alternative energy is on the ascendance, where as fossil fuels will inevitably decline (NextEra isn't a pure play in this regard however, natural gas assets are part of its portfolio). If you share this belief and you want exposure to this market, NextEra looks like a good bet.