The seven steps
- 1Understand the business. What does the company sell, to whom, and which activity brings in the money? If you cannot explain it in two sentences, stop there. Ask the AI to explain the segments and the business model in plain words.
- 2Check the quality of the results. Is revenue growing, are margins holding, does profit turn into cash, is debt under control? Three measures help: ROIC (does the business earn more than its capital costs?), free cash flow and the Piotroski F-Score. For fragile companies, add the Altman Z-Score.
- 3Look at what the price assumes. A P/E alone says little; compare it with the company’s history and its sector. Better still, ask what growth the price requires with a reverse DCF, or build your own estimate with the DCF calculator.
- 4Find out what has changed. The last results against expectations, revisions to analyst estimates, and purchases by executives with their own money.
- 5Look at the price trend — last. The momentum and moving averages tell you how the market is treating the stock right now. It is context, not a reason on its own.
- 6Write your thesis down. In three sentences: why this company, what has to happen, and what would prove you wrong. Then look for the strongest objections — the War Room exists for that.
- 7Fit it into your portfolio. How much would it weigh, does it add to a risk you already carry (same sector, same currency)? See diversification and how to audit a portfolio.
Using AI without being misled
- Never trust a figure that has no source. A language model can state a revenue or a ratio confidently and wrongly. Use tools where figures are computed from data — see how AI stock analysis works.
- Ask the AI to explain, not to decide. “What drives this margin?” is a good question; “should I buy?” is not one any tool can answer for you.
- Ask for the opposite case. A good answer includes what could go wrong.
- Check the important figure at the source. The company’s annual report or results release is the reference.
- Be wary of certainty. Nobody knows tomorrow’s price; a tool that claims to is selling something.
Ten words to know
| Term | What it means |
|---|---|
| Revenue | What the company sells over a period, before any cost. |
| Operating margin | The share of revenue left after the costs of running the business. |
| Free cash flow | The cash left after running the business and investing in it. The money really available. |
| ROIC | Return on invested capital: what the business earns on the money put into it. |
| P/E | Price divided by earnings per share: how many years of current profit the price represents. |
| DCF | Discounted cash flow: a value obtained by bringing future cash flows back to today. |
| Reverse DCF | The same calculation backwards: the growth the current price assumes. |
| Consensus | The average of analysts’ forecasts for revenue and earnings. |
| Piotroski F-Score | Nine yes-or-no tests of financial health, scored 0 to 9. |
| Diversification | Spreading money across companies, sectors and regions so one mistake does not sink the whole. |
To see what these measures look like across about 600 large companies, sector by sector, see the stock market statistics.
Doing it with InvestIQ
Each step has its place in InvestIQ. Stock Analysis covers steps 1 to 5 in one place, with a Copilot button on every module. A Deep Research report writes up the company in 15 to 18 pages. The Copilot explains any figure at your level. The portfolio analyzer covers step 7. In all of them, the figures come from data and code; the AI explains them.
The Free plan includes 3 stock analyses, 1 Deep Research report and 1 portfolio audit a month, and 10 Copilot messages a day — enough to follow this guide on a few companies. The War Room starts with Pro.