Pitch me a stock
- 04:02
An example answer to the question 'pitch me a stock' in an Investment Banking interview, with expert feedback.
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Transcript
Can you pitch me a stock? Yes, so the beverages industry is a really interesting industry and I think it gives us some really good investment ideas. Monster Beverage Corp is a company I'm really interested in at the moment. They currently have the most expensive stock in the beverages industry and they're trading at an EV/EBITDA multiple of 23 times and a P/E ratio of 30 times. Some of this valuation might be justified. They've seen considerable growth over the last two years and their growth is of 14%, and that's compared to an industry average of 9%. They have seen recent sustained increase in their market share. So Red Bull currently have a 43% market share and Monster a second only to them at the 39% market share. Although this market share could be as a result of Coca-Cola acquiring a 17% stake in Monster back in 2014. I think there are two major risks to Monster's sustained growth within the industry. The first one being from competition. So Pepsi recently acquired Rockstar who are another energy drinks company, and they currently have a 10% market share. I think this has undoubtedly given Rockstar access to Pepsi's considerable distribution network as well as improving their brand awareness. I think the other challenge and risk to Monster's sustained growth could be from the environmental, social, and governance issues around the beverages industry and the energy drinks industry. The first concern is around health. Obviously the sugar content of energy drinks is quite high and sugar isn't something that can be easily substituted out of energy drinks. The second is the environmental concerns around water consumption of the agricultural and manufacturing process. That isn't to say that these factors couldn't be overcome by a business with scale but Monster is currently only one fifth of the size of Coca-Cola and Pepsi. So for these reasons, I would give Monster a sale recommendation 'cause I believe it's overvalued. I know that's quite controversial as the general consensus would be to give Monster a buy recommendation. - This is one of the most common interview questions as it shows your interest in the markets and not just your interest in earning a high salary. This beverage's answer has clearly been thoroughly researched by the interviewee and is a standout answer. The interviewee was able to talk at length about this company and make recommendations, but be prepared for a more conversational style as well where the interviewer will probe your knowledge on a subject by asking guiding questions. If you've been talking about the advantages of an investment but forget to mention any disadvantages, the interviewer will naturally prompt you to talk about these two. So don't feel you need to prepare a script. Just do your research into some stocks and be ready for a chat. Also, be prepared to pitch three or four stocks. For example a large cap, a small cap, and a stock that you would short or bet against. Knowing their ESG credentials, their environmental, social and governance is good as it shows you are interested in current issues around investments. The best way to prepare yourself is by reading a few analyst reports to find out some key information about the company, including their basic valuation metrics. Things like revenue, EBITDA, EV/EBITDA multiples. These are the basic metrics of investing. So if you don't know them yet, go and do your research. Also, some key operational stats, maybe the number of drinks sold in different markets maybe. And the names of key members of the management team, for instance maybe Monster have just employed a leading figure from a competitor, but ultimately back up your argument, which means having at least three key points.