When you're evaluating a stock to buy for your portfolio, there are a number of approaches and strategies to analyze the company in question. In this segment of Backstage Pass, recorded on Jan. 11, Motley Fool analyst Asit Sharma and Fool contributors Rachel Warren, Demitri Kalogeropoulos, and Jose Najarro play a game where they develop a market-based approach to analyzing a stock they haven't studied before and without looking at its balance sheet.
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Asit Sharma: Now, let me ask you. Panel friends, Fools, do you know a company called Proterra (PTRA 5.71%), an electric bus maker?
Rachel Warren: I don't think so.
Demitri Kalogeropoulos: I haven't heard of it. [LAUGHTER]
Jose Najarro: I haven't either.
Asit Sharma: So we were talking about stuff that you can afford. It's not that I can't afford a Barron's subscription, but it's not one of the ones that I choose to subscribe to. I think it's more valuable than a lot of publications out there, but this is one of those things. I saw this headline and the headline is, "Shares of electric bus maker Proterra look like a bargain." Do they Barron's? [laughs]
I tried to read the article and it faded out, they threw up that paywall and I was like, this is such a great thing because I really believe strongly and you figuring out things for yourself, someone throws in an opinion. Rachel says, "Asit, you got to buy the stock." Or Demitri or Jose says, "Man, this is a sure bet, these guys are really smart." But something my brain always wants to say, OK, but what do I think about it? Because, you know what? Rachel, Demitri, and Jose, they're not there when I don't know what to do with the stock a year later.
They are there to tell me like, "Hey, grab this." When I talked to you earlier, but it's down 30%. What do I do now? [laughs] I'm kidding, they are there, they're Fools. They will tell me, hold on, it's a good company. I thought this would be a fun one for us to talk about over the next few weeks. Now we have our criteria that we developed together, it's not my criteria. We talked about the things that were important to us, management that cares, capital-light companies, companies, and fast-growing industries.
We're not sure we want to pay too much attention right now to companies that are really, really small market capitalization. I'll pull those up next week. It's stuff that we developed as a team over the last couple of months. On the surface of it, what are your thoughts, an electric bus maker, when I give you those terms, what are your first thoughts as you assess a potential investment opportunity? I'm going to mute myself and let you guys talk.
Rachel Warren: The next iteration of, I don't know, EVs. I don't know if, I have to look into this company more because I literally don't know anything about it. I'd really be curious to take a peek at the financials, but I think as a whole, is this more like commercial buses, like school buses? Because I'm wondering if you'd see a whole lot more demand for that.
Yes, more people are buying electric vehicles for personal use, but I feel like this could be something that would also be really interesting. But I don't know, this is a space I haven't explored at all, but I'm eager to learn more.
Demitri Kalogeropoulos: I will just quickly say, I'm thinking, I know it's historically hard to make any money in the automobile industry, and I do know Tesla (TSLA 1.80%) has bucked that trend, but mainly by going one of his amazing Elon Musk innovations, the approach has gone super high-end and then allowing that to build to the mass market in that way. It would be hard for me to see how a bus company could do something similar, but you never know.
Jose Najarro: One thing I would ask are the buses already made, or do they have any live production or is this more of those EV companies that we've seen in 2021 where it's more of just we're still in the testing and production state.
Rachel Warren: Do they have a lot like a lot of open contracts, what's the deal?
Asit Sharma: You guys are all over this, these are amazing observations because, in the bit that I could read, all three of your comments are extremely relevant. Here we see audience, we took a market-based approach if we didn't know anything else and someone asked us, the three of you guys, sorry. I just listened, went immediately to the market equation. What's the market pull? Is this a company that might have potential to do something that's really difficult as Tesla did? Is it a concept company or do they actually have some cash flow? I'm going to just add one thing to that, which is why are they a bargain right now? Barron's, which I already asked.
Let's each of us take some time over the next week and get a little bit familiar with this company. Right off the bat, my only thing to add to this is well, it doesn't scream capital efficient. That's the one thing that made me think, that might give it a few demerits in our prototyping, but hey, if the management team is great if we can answer some of these really amazing questions, maybe there's investment here. But not having seen more than a headline, what do the four of us know?