How to Research a Stock From Scratch – Without Being a Professional Analyst

Episode 9 of The Smarter Money Show is a hands-on guide to researching stocks from scratch, using a simple, repeatable framework. You’ll learn how to evaluate a company’s business model, financials, valuation, competitive edge, and risks - all without spreadsheets or jargon.

We cover key questions to ask, red flags to avoid, and how to build conviction without falling into hype. This is the blueprint for smarter, independent stock research - clear, practical, and built for real-world investors. Whether you’re considering your first stock or refining your process, this episode will sharpen how you think.

Episode Transcript

Speaker 1 (00:00):
Before we dive in, here's your quick disclaimer. This podcast
is for informational and educational purposes only. It is not
financial advice. Always do your own research and consult with
a licensed advisor before making investment decisions. Welcome back to
the Smarter Money Show. I'm your host, and this is
episode nine. Today we're going tactical. We're talking about how

(00:21):
to research a stock from scratch, even if you've never
done it before. No finance degree required, no complicated spreadsheets,
just a clear, structured way to figure out is this
a business I want to own a piece of or not?
Let's start here. Investing in a stock means buying a
slice of a real business, not just a ticker symbol,
not just a chart of business with customers, competitors, revenue, expenses,

(00:46):
and risks. So your goal as an investor is to
understand that business as clearly and simply as possible, not perfectly,
but directionally right. So here's the process I use and
one you can steal and make your own. Five core steps.
Understand what the company actually does. Assess the financial health
and growth. Look at valuation what are you paying, Evaluate

(01:09):
the competitive edge and future prospects. Identify the risks that
could break the story. Let's break each one down. Step one,
understand the business. This sounds obvious, but it's where most
people fail. Before looking at charts, earnings, or opinions, ask
what does this company actually do? Who are their customers?
How do they make money? What products or services do

(01:29):
they sell? Is it a one time purchase or recurring revenue?
Are they in one country or global? You want a
mental model of how this business works. For example, Netflix
makes money from monthly subscriptions. Apple sells premium hardware, then
builds a software ecosystem. Adobe shifted from selling software once
to a recurring SaaS model. These distinctions matter. If you

(01:51):
can't explain the business in one or two sentences, you
don't understand it well enough to invest in it. Step two,
look at the financials. No, you don't need to be
an accountant, but you do need to know what to
look for. Key things to check revenue growth. Is the
business growing year over year? Look at the past three
five years? Flat or shrinking revenue is a red flag

(02:12):
unless it's part of a turnaround story. Gross margin Are
they keeping a healthy cut of every dollar earned? A
software company with eighty percent margins is different from a
retailer with thirty percent operating income and net income. Are
they profitable and is that profit growing? Free cash flow
this is the money the company actually keeps after expenses
and investments. It's one of the best indicators of real

(02:34):
financial strength. Debt. How much do they owe? Is debt
growing or shrinking? Can they cover their interest payments easily?
You don't need to calculate all this yourself. Sites like
ticker seeking, Alpha or even Yahoo Finance show you this data.
You just need to interpret it. Growing revenue, improving margins,
strong free cash flow, and low or manageable debt. That's

(02:56):
the profile of a healthy company. Step three, understand the valuation.
Now that you like the business, what's the price, Because
a great business at the wrong price is still a
bad investment. Valuation metrics to check PE ratio price to
earnings common but not always useful if earnings are volatile.
PS ratio price to sales better for growth companies that

(03:17):
aren't yet profitable. PEG ratio PE divided by growth rate
tells you how expensive a stock is relative to expected
growth ev eby DA, a cleaner valuation metric that accounts
for debt and cash but context matters. A PE of
twenty five might be cheap for a company growing thirty
percent per year and expensive for one growing five percent.

(03:40):
Compared to industry peers look at historical ranges and most importantly,
ask what's already priced in. If perfection is priced in,
even good news won't move the stock. That's dangerous. Step
four evaluate the competitive position. Now, ask what gives this
company an edge? Why can't a competitor come in tomorrow
and steal their business? This is where you think about motes.

(04:02):
Do they have a brand advantage think Nike or Apple.
Do they have a network effect think Meta or Airbnb?
Are they embedded in their customers workflows think Adobe or Salesforce.
Do they own critical infrastructure think utilities or data centers.
Also look at market share? Is it growing? Are they
expanding into new verticals? Do they dominate a niche or

(04:23):
are they getting squeezed by bigger players. You want to
invest in companies with some form of protection, a structural advantage.
If there's none, the risk is much higher. Step five
identify the risks. This is where discipline kicks in. Most
investors skip this part. Don't ask yourself what could go wrong?
Is the business cyclical, tied to economic booms and busts.

(04:46):
Are they heavily regulated? Do they rely on a few
big customers? Is their management risk? Are insiders selling shares aggressively?
Also look for red flags declining margins, high stock based compensation,
frequent share dilution, and an a activity that smells like
desperation over promising in earnings calls. You don't have to
find no risk, that's impossible, but you want to know

(05:08):
what the big risks are before you buy, not after.
Now here's the kicker. Once you've gone through these five steps,
write it all down, just a one page summary. Why
you like the company, what your thesis is, what would
make you sell? This is your investment journal. It gives
you clarity, It keeps you honest, and it saves you

(05:28):
from panic when the stock drops fifteen percent on bad news.
Let me give you a real world example, something simple.
Say you're looking at Costco. Step one. They're a membership
based retail warehouse model. Customers pay an annual fee for
access to bulk pricing. Business model is sticky and recurring.
Step two. Revenue is growing steadily. Profit margins are low.

(05:49):
It's retail, but they make a huge chunk of profit
from the membership fees. Free cash flow is strong, debt
is manageable. Step three, valuation is a bit high compared
to historical norms. The assistency and customer loyalty often justify
a premium. Step four. Their mode is scale and customer
loyalty people renew at over ninety percent rates. They have

(06:09):
pricing power and vendor leverage. Step five. Risks include inflation,
labor costs, and potential e commerce disruption. But so far
they've navigated these, Well that's your case. You don't need
a forty page pdf. You need clarity. So to recap
start by understanding the business. Look at key financials, think
about valuation in context, look for competitive advantages, identify real

(06:33):
world risks, then decide is this a business I understand,
believe in, and want to own. And remember, you don't
need to find the perfect stock. You just need to
find good businesses at reasonable prices with real staying power
and then hold them long enough for the thesis to
play out. And of course this is not financial advice,
just a framework to help you think better, dig deeper,

(06:55):
and invest smarter. If this episode helps simplify the research
process for you, share it with a friend, follow the show,
and leave a rating. In the next episode, we'll talk
about the most common investing myths and what to believe instead.
Thanks for listening, Stay smart, stay patient, and stay invested.