How To Do A One-Hour Analysis

The purpose of a one-hour analysis is to quickly evaluate the positive and negative attributes of a company. The key question is how much more time do I want to spend on this company.  The job of a generalist is make quick decisions about when further investigation is warranted, and when it is best to move along.

It takes experience to develop this skill. Early on a one-hour analysis can easily take 3-4 hours.  After a while, it is often possible to dismiss a company in 15 minutes.  We have never seen this skill discussed in any other text or book about investment analysis.  The best way to learn is to start by actually doing some.

We like to start with a Value Line page. Most of what we look for is also present on Moringstar, Gurufocus, Google Finance and or Yahoo Finance. Here are some of the things we look for:

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One-Hour Analysis of Live Nation

We like to use Value Line as a weekly source of potential ideas. Since we are value investors, some might find it strange that we would use a publication whose ranking system is based mostly on price and earnings momentum as a primary source of idea generation. Perhaps in the future we will take a look at track record of their ranking system and similar ones like Zack’s and review the literature on adding a momentum component to value investing. But back to how we use Value Line as an idea sourcing tool.   Every week Value Line publishes an issue that contains roughly 130 stocks in it grouped by industry. This gives us a chance to quickly review the latest results and financial metrics on 6 or so industries a week. It also puts in front of us hundreds of companies we might never even think about or come across using other methods.

One such company that popped out of a recent Value Line issue we decided to revisit was Live Nation. While at Behind the Numbers we originally wrote up the company as a short. We were concerned with the high leverage, the aggressive rollup strategy, governance issues and long-term growth rate assumptions amongst other things.  Since then, LYV has merged with Ticketmaster, signed a mega deal with Madonna and now have John Malone and Liberty Media as large shareholders.  We decided to take another look at LYV to see if it has any investment merits either long or short. Here is how I started my “One hour analysis” of LYV. [Read more…]

One-Hour Analysis of L-3 Communications

Using some of our recommended tools and websites, here is what I learned about L-3 Communications in one hour of Internet research.

From Value Line

  • Stock is pretty cheap, 1x book, 10x EPS, 7x CF
  • But all of book value is goodwill, not great, but nor disqualifying
  • Not a lot of charge-offs, a major positive
  • Stock was a good relative performer until early 2009, since then it’s been miserable
  • Balance sheet has improved, but still is at best average
  • Consistent stock buybacks since 2006, a very positive sign
  • Dividend payout ratio about 25%, still room for small dividend increases [Read more…]