6 Common Buy-Side Questions

1) Is this a good or bad business?
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What to check:

1. Organic growth: Are sales growing without relying on acquisitions or price hikes only?
2. Margins: Are gross/EBIT/FCF margins stable or improving? Why?
3. Capital intensity: How much cash is needed for capex and working capital to keep growing?
4. Capital deployment: Do buybacks/dividends/M&A create value vs. the company’s hurdle rate (ROIC > WACC)?
5. Durability (terminal view): Brand, switching costs, network effects, regulation, cyclicality.

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How the model helps:

Lays out unit economics (price × volume, mix, cost stack), shows cash conversion, and calculates ROIC vs. WACC.
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Decision output:

“High-quality compounding business” vs. “OK business” vs. “value trap,” with 3 numbers to back it (ROIC, FCF margin, organic growth).

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2) Is this stock cheap or expensive

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What to check:

1. DCF: What is the present value of future free cash flow under Base/Bull/Bear?
2. Multiples: Compare EV/EBITDA, P/E, P/FCF to peers adjusted for growth/quality.
3. Reconciliation: If DCF says $52 and peers imply $48–$55, your fair-value band is ~$50–$55.
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How the model helps:

Forecasts the drivers (growth, margins, reinvestment), converts to FCF, applies discount rate, and builds a comps table that’s apples-to-apples.

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Decision output:

“At $41, stock trades ~20% below our $50 FV mid; upside mainly from margin normalizing.”

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3) What expectations are priced into this stock?

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What to check:

1. Back-solve the price to implied Revenue, EBITDA, EPS, FCF paths (what must be true for today’s price to be fair).
2. P/E roll-forward: Price today = NTM EPS × NTM P/E; roll both a year ahead to see what the market “assumes.”
3. History: Is the multiple near normal, depressed, or stretched vs. its own history and peers?

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How the model helps:

Toggles let you solve for the growth or margin that equates model value to the live price.

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Decision output:

“Price implies 16% revenue CAGR and 24% EBIT in ’27; our work supports 10% and 20% → market is too optimistic.”

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4) Will this stock beat or miss earnings?

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What to check (next 1–2 quarters):

• 2–4 beat/miss drivers: units, price/mix, gross margin tailwinds (e.g., freight, input costs), opex timing, seasonality.
• Consensus vs. your model: Where are you higher/lower and why?
• Catalysts: Guidance, launches, regulatory prints, macro data that hit before earnings.
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How the model helps:

Earnings bridge shows exactly why your EPS differs from the Street and by how much.
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Decision output:

“We’re +7% above Street on GM from lower input costs; odds of a beat are good; risk is mix shift in EMEA.”

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5) What metrics will drive the stock?

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What to check:

• Identify the few KPIs with real pull-through to EPS/FCF (e.g., same-store sales, churn, utilization, take rate, commodity price).
• Sensitivity: Quantify “±X in KPI → ±Y in EPS/valuation.”
• Tripwires: Thresholds where you add/trim/exit.
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How the model helps:

Sensitivity tables connect KPI changes to earnings and valuation, so you know what to watch weekly/monthly.

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Decision output:

“Every +1 pt gross margin adds ~$0.12 EPS and ~2% to fair value; churn >4% breaks the thesis.”

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‍6) How much should this stock react to this news?

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What to check:

• Turn the headline into numbers (size, duration, profitability).
• Flow it through: revenue → gross profit → tax → EPS/FCF → apply a reasonable multiple.
• Cross-check typical move vs. surprise size and any factor/macro noise.
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How the model helps:

You can update a few cells and instantly see ΔEPS and Δfair value.

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Decision output:

New contract lifts FY FCF by ~1.5% → +2% to fair value; expect a low-single-digit price move barring macro swings.”

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