Evaluating stocks involves two types of analysis: fundamental and technical. The former is all about number crunching while the latter uses up-and-down squiggly lines to chart a stock\u2019s course. In the end, it\u2019s all about being right more often than wrong. Investment professionals are constantly looking for that slight edge over the competition. One place they might easily overlook (but shouldn\u2019t) is within the realm of qualitative analysis, a subjective area that is sometimes referred to as soft metrics. This refers to aspects of a public company that aren\u2019t quantifiable or easily explained by numbers. In general, it\u2019s an underappreciated and underutilized side of fundamental analysis.<\/p>\n
When conducting qualitative analysis of a company, most investment professionals look at the business model, competitive advantage in the industry, management and corporate governance. This helps to determine how a company makes money, its uniqueness versus the competition, which people are making the decisions and how they treat ordinary shareholders. Gathering all of this data can provide a better idea of how a company intends to grow its business while rewarding shareholders. However, it isn\u2019t the entire picture. Touchy-feely subjects like satisfying the customer, rewarding employees and maintaining excellent supplier relationships matter.<\/p>\n
Understanding the qualities that make a company great involve more than a simple SWOT analysis (strengths, weaknesses, opportunities and threats)\u2013that\u2019s business school 101 stuff. To evaluate a company\u2019s intangibles, one must dig below the surface and beyond the 10-K. Satisfaction is the key here and successful businesses have it in abundance.<\/p>\n