How to pitch a stock in an interview, with a template

What does an interviewer want from a stock pitch?

Evidence that you think like an investor. That means a view that differs from the market's, a reason the market is wrong, a number for what the stock is worth, a catalyst that closes the gap, and honest risks. A pitch that just says the company is great is a description, not a pitch.

The pitch is also a test of depth. The first two minutes get you into the conversation; the next fifteen minutes of follow ups decide the interview. The sample below is from our hedge fund markets bank, which is mostly those follow ups.

What is the template?

Six parts, in this order. Lead with the conclusion so the interviewer knows where you are going, then earn it. Each part should be a sentence or two, so the whole pitch stays near two minutes.

1. Recommendation: long or short, the price today, your target, and the time frame. One sentence.
2. The business: what the company does and how it makes money, in plain words. Two sentences.
3. Thesis: two or three reasons the stock will reach your target, each with a number.
4. Variant view: what the market believes, what you believe, and why the market is wrong.
5. Valuation: how you got your target, usually a multiple on next year's earnings or cash flow, checked against peers and history.
6. Catalysts and risks: what will prove you right and when, the two risks that worry you most, and the price or fact that would make you sell.

What does a worked example look like?

Here is a made up company so the numbers are easy to follow. Assume a stock at 50 dollars, trading at 20 times consensus earnings per share of 2.50 for next year. You think earnings will be 3.00 because a new product is ramping faster than analysts model.

Base case: earnings of 3.00 at the same 20 times is 60 dollars, up 20%. Bull case: earnings of 3.50 at 20 times is 70, up 40%. Bear case: the product stalls and earnings come in at 2.20, at 20 times that is 44, down 12%. Weight the cases 25% bull, 50% base, 25% bear: 0.25 times 70 plus 0.5 times 60 plus 0.25 times 44 is 17.5 plus 30 plus 11, so an expected value of 58.50, about 17% above today. The upside in the base case is 10 dollars against 6 dollars of downside in the bear case, and 20 dollars of upside in the bull case.

• Recommendation: long at 50, target 60 over twelve months.
• Variant view: consensus earnings of 2.50 miss the new product; you are at 3.00.
• Valuation: 20 times your 3.00, held at today's multiple, so no multiple expansion is needed.
• Catalyst: the next two quarterly reports, when product revenue is first broken out.
• Risk and exit: if product revenue misses for two quarters, the thesis is wrong, and you sell.

How do you pick the stock?

Pick one you can know better than the interviewer in the time you have. A mid sized company in an industry you understand beats a mega cap everyone in the room already has a view on. Avoid the most popular stocks of the moment, since the interviewer has heard the pitch many times and will test you on the consensus.

• You understand how it makes money and can explain it to a non specialist.
• You can name the one metric the stock trades on.
• You know its multiples against peers and its own history.
• There is a dated catalyst in the next year.
• You have read the last annual report and the last two earnings call transcripts.
• You can state the strongest bear case and answer it.

What follow ups should you prepare for?

The follow ups are where the pitch is won or lost. Before every interview, write a one line answer to each of these, and update them after every earnings report.

• What is the market cap, enterprise value, and forward multiple?
• What does consensus expect for next quarter, and where are you different?
• Who is on the other side of your trade, and why are they wrong?
• What would make you wrong, and at what price do you sell?
• How would you hedge it?
• How big a position would you take in a fund, and why?

How is a short pitch different?

A short needs a catalyst more than a long does, because the stock can stay expensive for a long time while you pay to borrow it and losses are not capped. Expensive alone is not a reason to short. Name what the market is missing (earnings that will be cut, accounting that flatters results, a business losing share) and the event that will reveal it. Know the short interest and the borrow cost.

For most interviews, lead with a long and have a short ready if asked. Funds that run long and short books will often ask for both.

Questions students ask

How long should an interview stock pitch be?

Two minutes for the first version, with a thirty second version ready if they ask for the short form. Then expect follow ups for most of the interview.

Should I pitch a big well known company?

Usually not. The interviewer will know it well and test you on consensus. A smaller company you know deeply is safer.

Do I need a full model?

A simple one helps: revenue, margins, earnings per share for the next two years, and your multiple. You need to defend the numbers, not to show a large spreadsheet.

What if my stock moves a lot before the interview?

Update the pitch. Recompute the upside to your target. If the move used up the upside, say so and explain whether you would still own it.

Do banking interviews ask for stock pitches too?

Sometimes, especially at firms with research or markets businesses, and often in S&T. It is central for hedge funds and asset managers.