Within the Equity Research Project, the primary responsibility of the Finance division is to determine an accurate valuation for the selected companies. In close collaboration with other divisions, our members start by gaining an in-depth understanding of the company's core activities, cash flow generation, historical trends, and profitability metrics. Armed with this knowledge, we advance the valuation process, employing both absolute and relative valuation techniques, underpinned by a rigorous, data-driven, and impartial approach.
Run the necessary due diligence
To accurately ascertain a company’s intrinsic value, it is essential to conduct proper Due Diligence. We meticulously examine the firm's SEC filings and analyst reports, seeking a deep understanding of its operations and the varied contributions of different segments to its revenues and profits. We strongly believe that pre-valuation analysis is even more important than the actual valuation, as any mistake in the due diligence process can deeply impact the accuracy of the valuation.
Apply a data driven approach to valuation
Following the principles advocated by esteemed Value Investors, we maintain that it's imperative to eradicate all biases. The most effective method for this is to be rigorously data-driven. By fostering a collaborative environment and actively seeking diverse perspectives, we strive to uphold objectivity. Furthermore, it's our conviction that cash flow projections should be determined prior to entering data into our models, ensuring our foundational beliefs remain uninfluenced by subsequent outcomes.
Take advantage of differente valuation tools
Utilizing varied valuation methods is fundamental to sidestepping biases and accurately discerning a company's intrinsic value. While we predominantly employ absolute valuations, like the DCF model, as central to our pursuit of intrinsic value, we are convinced that supplementing this with relative valuation tools not only enhances but also fortifies the robustness of our analysis.
Apply margin of safety
Recognizing the potential imperfections in our projections is a foundational step to excelling as an analyst and Value Investor. Beyond this, it's paramount to understand that many risks could occur, adversely impacting both a company's foundational health and its market valuation. As Seth Klarman has frequently emphasized, applying a margin of safety and acquiring stocks only when their price is significantly below their intrinsic value can shield one from losses, even if future outcomes don't correspond precisely to our initial estimations.
What do we do?
Discounted Cash Flow Model
TOur team primarily employs the Discounted Cash Flow (DCF) model as the main absolute valuation tool. This model allows us to determine the intrinsic value based on the company's fundamentals. To us the DCF's output are pivotal in assessing whether a company's stock presents a viable investment opportunity.
Comparable Companies analysis
As outlined in our approach section, we emphasize the necessity of complementing absolute valuation methods with relative valuation tools. This combined approach provides a robust verification of our findings, and it enables us to discern if there are other companies potentially offering better value. In the context of investing, it's crucial to continually seek superior opportunities, possibly more compelling than those currently under analysis. To this end, we frequently employ the Comparable Companies Analysis in our reports.
Meet the Leaders of the Division
Meet the Leaders of the Sector and Strategy Division at Bocconi Students for Value Investing. Feel free to reach out with questions or to gain deeper insights into what our division encompasses!
Head of the Division
Supervisor of the Division