Advice for Industry Analysis

intern profile

June 30, 2020

by an member from Universidad Nacional de Educación a Distancia in 11100 San Fernando, Cádiz, España

In the SF I'm working at as an intern, we are going to start searching for deals with a top-down approach. That is, analyzing industries and then looking for potencial deals within those industries.

Any advice regarding Industry Analysis? Processes, checklists, ways of structuring the analysis...

Thanks in advance!!

9
12
202
Replies
12
commentor profile
Reply by a searcher
from University of Pennsylvania in Park City, UT, USA
I have a couple different approaches I really like:

1. If you have no real perspective on an industry, I would start with a public equities screening tool (e.g., Bloomberg or CapIQ). If you don't have access to those (which you probably don't), check out https://finviz.com/screener.ashx . Before you go on this, determine what financial characteristics you'll be searching for and then set up the parameters in the screener. Then you'll have a long list of companies to look through. Look through each company to figure out what industry they are in / what they do to start generating a long list of ideas based on what sounds like a good business. After that, you'll have to come up with the next layer of criteria (beyond asset intensity, margins, etc.).

2. If you do have a perspective (e.g., I'd like to do something in Agribusiness because it has attractive long-term growth tailwinds), then I'd do a full industry breakdown. It can be pretty time consuming but the idea is to go from raw materials all the way to end consumer. Map out every single step in the process in as much detail as possible. List out competitors who play in that space. Next critical piece is to estimate (as best you can) what their margin is. The goal here is to figure out where all the profit is going - this will help point you to the most attractive parts of the value chain.
commentor profile
Reply by a searcher
from Massachusetts Institute of Technology in Miami Beach, FL, USA
I skimmed through Business Brokerage Press's reference guide with a highlighter in order to generate some broad industry ideas. Took me about 2-3 hours. In terms of checklists or processes, Porter's "Five Forces" are kind of the standard for comparing industries. NYU's Aswath Damodaran has a bunch of data (http://people.stern.nyu.edu/adamodar/New_Home_Page/datacurrent.html) generated from public companies that could be useful in your analysis... but I have yet to find a use for it in my own analysis.

Personally, I've been going with my gut. I ask myself two questions: (1) Could I dedicate fewer than 40 hours per week to a company in this industry while having it maintain its position (i.e. am I buying a job)? (2) Is there a chance moats exist in this industry?
commentor profile
+10 more replies.
Join the discussion