myICLUB Blog

The nonprofit investor organization BetterInvesting relies on the Stock Selection Guide (SSG) for company analysis. The first page of the SSG typically is a view of the past 10 years of a company’s financial history, with an eye to determining consistency of past growth and the strength of that growth. But what if you’re examining a company that may have only have a few years of data available because the company went public fairly recently? While the lack of a longer track record can make it more difficult to evaluate a company without a decade-long historic record, there are still various options to get more background on a company on your radar.

When reviewing companies with shorter histories, we like to see three years of operating history. You may not have a company’s three-year record as a publicly traded stock, but the idea is to discern some insight into the direction the company’s business is headed. Are revenues and earnings growing? What are its risks and competitive environment like?

You can dig up quite a bit of financial data for companies that began trading shares on a public exchange in recent years by delving into the period prior to its going public. Primary among these is the S-1 Registration Statement companies file with the Securities and Exchange Commission. This lengthy, comprehensive document details how a company plans to use capital it hopes to raise in its initial public offering and the various competitive and risk factors it faces, as well as details about major investors, the executive team and much more. 

Companies preparing to go public may provide additional information with S-1/A statements that may appear during the weeks prior to the offering date. The most recent S-1/A statement is important to consult when researching a company with a short history. Look for income statements, balance sheets and cash-flow statements going back at least three years and use these clues to analyze how the company as if it were a public company under review during that period.

These nuggets of additional historical data can help you analyze a newer company by entering the information you gather into a spreadsheet or SSG Plus. Such data may help you better understand a company’s condition and prospects so you may make more informed decisions.

Search for a company’s S-1 and S-1/A statements on the SEC’s EDGAR website at https://www.sec.gov/edgar/search/ where you will find various bits of useful information that can increase your understanding of a company’s track record and strategies. Don’t ignore this valuable and freely available research resource.

• DOUG GERLACH

Subscribers can read Doug's regular commentary and his in-depth profiles of recommended small company stocks in each issue of the SmallCap Informer stock newsletter, which has been beating the small-cap market indexes almost since its inception in 2012! Not a subscriber? Subscribe to the SmallCap Informer and get monthly small company stock recommendations and updated buy/sell prices for each of the 45 high-quality small company stocks currently covered in the newsletter.