When choosing companies in which to invest, you’ll want to form a first impression before delving into more thorough due diligence. This surface-level assessment can help you determine whether a company is worth spending more time on, or whether you should pass on it, in favor of other opportunities.
Forming a First Impression
Is this company worth investing in, or at least worth researching further?
Consider:
1. The name. It may not seem like a name means much to a business’s operations, but a business name can be a powerful indicator of the company’s values as well as its future performance. For example, if this name is unique, clever, and memorable, it will have a high likelihood of catching on with the general public. But if you could have come up with a similar name after just 5 minutes of working with a business name generator, it may not have as much potential. Similarly, think about how this business name makes you feel. What kind of impression does it give you? Do you have confidence in this company?
2. The branding. By extension, you’ll want to look at the branding of the company. What kind of image is this company trying to present? Are they making their name visible at all times? What kind of color schemes are they incorporating? Do their company values, vision, and mission seem to come through at all times? How are they marketing themselves? If the branding is inconsistent, or if you feel the marketing collateral is subpar, it could be a bad sign.
3. The product. If you have access to the product, you should try it for yourself. For example, if this company makes a communication app, download it and give it a try. Evaluate your personal experience. Was it easy to purchase or obtain this product? Was it intuitive and easy to learn? Would you use it in your own life and/or recommend it to others? Your instincts can take you far here.
4. The competition. What kind of competitors are already in this space? In some cases, an abundance of strong competition may deter you from investing. For example, if a startup emerges claiming to have a search engine that everyone will want to use, you may be skeptical, seeing Google’s dominance in the field. However, if this is a relatively new concept, and there aren’t many competitors to worry about, this could be an impressive opportunity.
5. The industry. What kind of momentum are you seeing in the industry? For example, if this company is in the travel industry, but people seem to be traveling much less than usual, it could be a case of bad timing—and a good reason not to invest. Pay attention to how other companies in this industry have performed in recent months.
6. The CEO. Companies tend to perform well under good management, but management teams can be hard for average investors to evaluate, even with ample time to research. As a way to get a first impression, take a look at the CEO. Have they conducted any interviews lately? Where have they had leadership experience in the past? Does this person inspire confidence? Do they have a clear vision on where they want to take the company?
7. The P/E ratio. A stock’s P/E ratio is its price to earnings ratio—a measure of the stock price, relative to the earnings per share it’s generating. The higher this ratio is, the more expensive the stock is, relative to the current earnings of the company. Different industries tend to have different average P/E ratios; these ratios can also be affected by things like whether the company is optimized for immediate profitability or long-term gains. Still, a lower-than-average P/E ratio for a company that otherwise makes a great impression is cause to investigate further.
8. Recent price movement. It’s also important to look at the recent momentum of the company’s stock price. Does this startup seem to be on an upward trajectory? Has it suffered any recent losses? Or does it seem to be remaining stable? If the company has yet to issue an initial public offering (IPO), you may not have much data to work with; instead, review recent company news.
The Importance of Following Up
While a first impression can help you identify promising opportunities, it can tell you whether it’s a good idea to invest, especially if you’re considering thoughtful, long-term plays. Here, due diligence is still your best friend, and the more thorough you are, the better. Make sure you’re consistently challenging yourself to learn more about your chosen
