Investing into great companies can have tremendous effects on your long term wealth, and performing
good fundamental analysis on companies is really the first step to uncovering great ones.
It's only through fundamental analysis that you can truly understand a company enough to know whether
it's likely to make you money in the long term.
But what exactly is fundamental analysis?
Today, many people talk about doing their deed on a stock, but limit that to a few YouTube videos
or CNBC articles.
But in reality, fundamental analysis is much more than that.
And in show it's really understanding of business on a high level.
Exactly what they do, their business model, their financial position, the growth prospects and also
the risks that they face as a business as well.
But how do you perform fundamental analysis?
While there are several key steps to this and in this section of the course, which is going to be the
most in-depth, we're going to cover each step from start to finish.
And in this video, we'll cover step one, which is perhaps the most important.
Now, a legendary investor, Peter Lynch, said that the reason many retail investors fail is that they
don't know what they own.
And that understanding of business before buying the stock is one of the most essential parts of investing.
He says that if you can't explain a stock in 2 minutes or less to a ten year old, then you really shouldn't
own it.
And you don't purchase a fridge without reading reviews.
So you definitely shouldn't buy a stock before really understanding the company and everything that
it does.
And that really is step one of fundamental analysis to really understand what our business does.
It sounds simple, but is an essential step, and you'll be surprised how many people will own a stock
like Cloudflare just because it does something in the cloud.
But they don't even know what a CDM means.
And it's something that's actually echoed by Warren Buffett as well.
He talks a lot about staying in your circle of competence, which means staying within stocks that you
actually understand.
And we're going to talk more about that later in the course.
But in order to start understanding a company, the first place we should really come to is the company's
investor relations page.
It can be as simple as just typing in investor relations, followed by the company name into Google.
So for this video, we're going to take a relatively small company, the tattooed chef, and come to
his Investor Relations page.
And one of the first things we'll see is what we see on most companies relations page.
It will be titled Corporate Profile or Business Description, or just some way to say that this is a
brief description of the business.
So let's assume we don't know anything about the company.
We come here and we read what they say.
So the tattooed chefs say they are a leading plant based food company.
They offer a broad portfolio of innovative plant based food products that taste great and are sustainably
sourced.
They say their signature products include Ready to cook bowls, zucchini spirals, Archibald's Smoothie
Bowls and Cauliflower Pizza Crust, which are available in frozen food sections of leading national
retail food stores across the United States.
So now already, if this is a business we haven't heard of, we have a brief understanding of the main
functions of the company.
They operate in the plant based food space, and they make plant based ready meals.
And let's do this for another company, Teladoc.
Again, if you see this ticker somewhere and you don't know what this company is, we come here and
we look and again, like the tattooed chef, they have a brief description on their main page of the
investor relations and they say Our track health, we are transforming how people access health care
around the world.
They describe themselves as a global leader in whole person, virtual care, offering technology to
connect, expertise that you can trust, and the power to improve health for everyone.
They say that they're delivering on their mission by providing whole person virtual care, which includes
primary care, mental health, chronic condition management and more, and that their vision is to make
virtual care the first step in any health care journey.
So already now we know that this is a company that provides a virtual health care.
They do things such as primary care, mental health and chronic condition management, and they offer
all of that virtually.
So just come into that Investor Relations page, reading that brief description for any company, you
will get a brief idea, okay, this is what the company does.
But to really take the understanding of a company to the next level, we have to go to the most important
document that every investor should read before investing into any stock, which is the company's latest
annual report is 10-K.
Now the 10-K is the literal gold that separates investors with great returns from investors that continuously
lose money.
And this document contains almost everything that you need to know about any given business.
So I've come to Teladoc Health 10-K and the first section on any given company's 10-K is going to be
a section titled Business, and in that section they're going to have a section called overview.
And this is something that you really have to read.
Reading this in full is going to give you a much deeper understanding of a company, is going to tell
you about their background, their mission, what they do, and give us insight into their size, scale
and growth potential as well.
So continuing with trying to understand Teladoc Health better, we know they are a virtual health care
company, but what else can we gain from briefly skimming this section right now?
So we can see, first of all, that they are the largest and most trusted global leader of comprehensive
virtual health care services.
Now, it's always good to fact check these things, but generally because the ten K is a legal requirement,
the company doesn't put outlandish claims into here.
And they also tell us that our mission is.
To empower all people everywhere to live their healthiest lives by transforming the health care experience.
So already we've got some idea of the scale of the company that they are a market leader, their mission
being that they want to make virtual care really the first place that people go to get the health care
that they need.
They also give us some idea into the fact that their clients consist of employers, including 50% of
the Fortune 500 health plans, health systems, insurance and financial service companies.
In this section here, they tell us how they're going to achieve their aims.
In this section here, they say we will achieve this by delivering, enabling and empowering integrated
whole person virtual care services.
So they're giving us an idea of how they're going to meet their aims in this section.
As all we can see, they have more than 51 million paid members and that they facilitated around 10.6
million telehealth visits in 2020.
So again, we're getting important information of the scale of where this company is right now.
And as you continue to read here, you'll see things such as the fact that the company currently delivers
its service in more than 175 countries.
So we know that this is a global business rather than just a domestic business as well.
And you've just got to read this entire business overview section to start to understand the company
on a deeper level, start to understand its key products and services, goals and visions as well.
So already just from briefly reading some of the 10-K, we have a better understanding of the company.
We know they're a leader.
Like I said, in virtual healthcare, we know their mission statement, the size of the business and
also roughly how many users they already have, as well as the fact there are global company.
But this isn't everything and you need to read the 10-K in full to get a better picture.
But this is a start that you should commit to making with every company you invest into.
As you read through the 10-K, you're going to read about their brand portfolio, who they serve, and
their main customers are how they generate revenue, which we're going to talk about soon, as well
as things as what they see as their competitive strengths, what their growth strategies actually are,
as well as how things such as sales and marketing work for the business.
We're going to talk about research and development.
They'll talk about their competition, and they'll just generally talk about important things to the
business.
So this first section of the 10-K line item one titled Business is one of the most key things that you've
got to read when starting your fundamental analysis.
You want to come out of reading this 10-K with a higher level understanding of what the business does
before even moving on to anything else to do with valuations and looking at the growth prospects or
anything like that.
Now the 10-K is amazing, but you don't need to just limit your research.
They're starting with the 10-K and then branching out into articles written in places like Seeking Alpha,
the company's own website, actual interviews from the management team, whether it's on news or YouTube
channels, any news coverage or even professional academic articles.
In places like Google Scholar, there are lots of places that you should continue your research on to
take it on to a higher and higher level.
And when you're doing that research outside of the 10-K, these are some of the key things that I think
you want to find.
Number one is what is the company's main product or service?
That's something that you need to deeply understand.
And also what makes that product or service special?
What need is the product addressing?
What customers are they serving, and how does that product or service actually fit into the market?
And finally, I also recommend trying to find out what the company's mission statement is.
And usually this is listed in the 10-K and I showed you Teladoc Health Mission statement when we were
looking at their 10-K earlier.
I personally I do place a lot of importance on the mission statement because it's going to tell you
what drives the business, what their goals are, and often what the company sees as its key value offering.
And it'll give you some indication into the kind of scale that this company sees themselves doing.
And a little tip that I have is something to ask about.
The mission statement is, is is it simple, is it inspirational?
And number three is the option able?
And we're going to talk more about looking for optionality in businesses later in this course.
But what optionality means is, does the mission statement give them room to expand into new products
and services in their current industry and potentially even new industries as well.
But we're going to talk a little bit more about that later and talk about how companies like Amazon
showed optionality and how investors made returns that they were not even once upon a time able to dream
of.
But getting back to the topic, once you've understood the business, the next step is to really understand
how it makes its money.
Yes, these are really two different things, because knowing a company provides virtual health care
doesn't tell you how they monetize it.
One company may charge clients per visit that they make to the doctor, and another may charge clients
a flat recurring monthly fee for access to medical services.
So it's important to get to grips with this, and we're going to cover that in the next video.