How to Research a Company Before Investing: A Step-by-Step Guide
A practical framework for researching stocks using SEC filings, financial analysis, and competitive research. No expensive tools required.
Buying a stock takes a couple of taps. Understanding what you just bought takes work.
If your process is basically “someone mentioned it, chart looked okay, I bought,” you’re not investing, you’re guessing. Real investing treats a stock as a claim on a real business. That means you need at least a basic grip on what the company actually does, how it’s performed historically, what could break, who is steering the ship, and whether the current price makes sense given all of that.
The good news: you don’t need a terminal or a paid data feed. Public companies are forced to tell you a lot about themselves for free. The bad news: it’s scattered across filings and websites and can feel overwhelming without a path.
This guide gives you a simple, reusable process you can run on any public company, using free information and a bit of structured thinking. It’s not about building the perfect model. It’s about stopping yourself from buying things you don’t understand.
A Simple Framework for Company Research
You can boil a sensible research process down to five questions:
- What does this company actually do?
- How has it performed financially?
- What can realistically go wrong?
- Who owns it, runs it, and gets paid by it?
- Given all that, is today’s price reasonable?
You move through them in order. If you get stuck on question one, you don’t skip ahead to valuation and hope for the best.
Step 1: Understand the Business Model
Start with the real world, not the spreadsheet. Before you look at any ratios, you want a plain‑language answer to:
- What does this company sell?
- Who pays them, and why?
- How does the money actually come in?
The place to learn this for a public company is its own filings, not its marketing copy.
The 10‑K annual report is your primary source. In particular, Item 1, “Business,” is a surprisingly good primer. It lays out the company’s products and services, how it organizes its operations, what its main markets are, and which trends and regulations matter. It’s not thrilling prose, but it’s written under legal constraint, which makes it more honest than the homepage.
You can layer on investor presentations and earnings call transcripts once you’ve read the boring stuff. Presentations (often posted on the investor relations site or attached to 8‑K filings) show how management pitches the story. Transcripts let you hear how that story sounds under questioning.
As you read, you’re trying to form a mental model of the flywheel: what drives demand, what drives pricing, what drives cost, and what stops competitors from copying all of that. If the only honest way you can describe the business is “some kind of platform” or “AI something something,” you’re probably not ready to risk money yet.
A concrete example helps. Take Costco. If you read their filings, you quickly discover that the core of the business is not “selling cheap stuff in big boxes.” The core is selling memberships. The warehouse clubs almost function as a break‑even operation designed to keep those memberships renewing. Once you grasp that, the way they price, staff, and expand makes a lot more sense.
That kind of “oh, that’s the real engine” insight is what you’re hunting for in Step 1.
Step 2: Look at Financial Performance Over Time
Once you think you understand how the machine is supposed to work, you check the gauges. The goal here is not to memorize line items, but to see whether the numbers match the story.
Public companies serve you three main reports in the 10‑K and 10‑Q:
- An income statement, which shows how much they sold and what was left after expenses.
- A balance sheet, which shows what they own and what they owe at a point in time.
- A cash flow statement, which shows where actual cash came from and went.
Start with direction and consistency. Has revenue grown over the last five years, or bounced around? Are gross and operating margins stable, expanding, or shrinking? Is there a pattern of “we grew, then crashed, then grew again,” or something more boring and steady?
Then look at how earnings and cash flow behave together. Healthy, straightforward businesses tend to show earnings and operating cash flow moving roughly in the same direction over time. When reported net income is climbing but operating cash flow is flat or negative, you pause and ask why. Maybe there’s a legitimate reason; maybe they’re recognizing revenue aggressively and cash isn’t following.
The balance sheet gives you a sense of survivability. How much cash is on hand? How much debt is outstanding? When does that debt mature? A mediocre company with a clean balance sheet has time to fix itself. A decent company buried in short‑term debt can get crushed by a mild downturn.
You don’t need to turn all this into an elaborate model. For many situations, it’s enough to say: this company has grown revenues at roughly this pace, maintained roughly these margins, consistently generated or burned this much free cash flow, and uses this amount of leverage. If that picture doesn’t line up with the story you formed in Step 1, take the dissonance seriously.
Step 3: Take Risks Seriously (Not Personally)
Every investment pitch can be made to sound compelling if you only talk about upside. The point of reading risk disclosures is not to freak yourself out; it’s to decide whether the potential downsides are ones you can live with at the current price.
The most concentrated list of risks lives in Item 1A of the 10‑K, “Risk Factors.” It will be long. Parts of it will be boilerplate. Still, it’s worth a slow read—especially if you compare it to the same section from the previous year.
What you’re looking for is change and specificity.
If a risk appears for the first time this year, or an old generic risk suddenly gets its own expanded paragraph with actual numbers or named counterparties, that’s a clue. A vague “we operate in a competitive marketplace” is one thing; a more pointed “we derive 30% of revenue from one customer and they are renegotiating their contract” is another.
Try to bucket what you read. Some issues are structural business risks (for example, new technology that could make the product obsolete). Some are financial risks (debt covenants, exposure to interest rates, dependence on capital markets). Others are external (regulation, macro conditions, FX, geopolitical events).
Then tie each risk back to the numbers. If a company warns that it might lose a key supplier, think about how that would show up in margins, inventory, and revenue. If it mentions potential regulatory changes, think about what line items would be affected.
The aim isn’t to talk yourself out of every idea. It’s to stop being surprised by risks that were already spelled out in black and white.
Step 4: Check Who Else Has Skin in the Game
A company is a set of contracts and incentives, not just a pile of assets. Even a decent business can be a bad investment if the wrong people are in charge or paid in the wrong way.
There are a few groups you care about.
First, insiders—executives and directors. The 10‑K and proxy statement tell you how much stock they own. Form 4 filings (which you can see in real time in Earnings Feed’s insider hub) tell you when they buy or sell. You don’t need to turn this into a full‑blown quant strategy, but you do want a rough sense of whether leadership is meaningfully invested alongside you, or simply collecting cash and options.
Second, institutional holders. Large owners file 13Fs that reveal their public equity positions. You’ll often see a split between long‑only asset managers, hedge funds, index funds, and smaller players. A name held primarily by patient, fundamental investors tends to trade differently than one dominated by short‑term hot money. Neither is automatically good or bad; it just shapes how the stock might behave when news hits.
Third, the board and comp structure. Reading about the board in the 10‑K and the compensation section in the proxy can be tedious, but it clues you into whether executives are being rewarded for building durable value or just hitting short‑term metrics. Are bonuses tied to things like earnings per share and return on capital, or to raw revenue regardless of profitability? Are stock awards vesting over sensible horizons, or constantly reset when targets are missed?
You don’t need to love every aspect of governance to invest. You do want to know if you’re signing up for a partnership with disciplined stewards or something more casual.
Step 5: Ask Whether the Price Is Actually Fair
Only after you’ve understood the business, looked at performance, examined risks, and checked incentives does it make sense to talk about valuation.
At a basic level, valuation is about mapping “this is the quality and growth of the business” to “this is how many years of earnings or cash flow I’m being asked to pay for.” You can approach that with simple multiples, more detailed cash flow estimates, or some hybrid of both.
Multiples are the easiest starting point. You look at things like price‑to‑earnings, enterprise‑value‑to‑EBITDA, price‑to‑sales, and free cash flow yield. Then you compare:
- To direct competitors.
- To the company’s own history.
- To the broader market, with an eye on growth and risk.
A company that grows slowly, is cyclical, and carries a lot of debt shouldn’t trade at the same multiple as a company that grows predictably, throws off cash, and has a clean balance sheet. When you see a big gap, you ask whether it’s justified.
If you’re comfortable building a simple cash flow model, you can project rough paths for revenue, margins, and capital spending, translate that into free cash flow, and discount it back. You will be wrong in the details. The point isn’t precision; it’s to see whether even generous assumptions barely justify the current price, or whether the market’s expectations are modest relative to what you think is likely.
Whatever approach you use, bake in the idea of a margin of safety: some cushion between your estimate of fair value and the current market price. That gap is what protects you when your assumptions turn out to be too rosy—because they will, occasionally.
Putting the Pieces Together
After you’ve run through the five steps, force yourself to write down your conclusion as if you were explaining the idea to someone who’s about to copy you.
In a paragraph or two, you should be able to describe what the company does, why that model works, what the numbers look like over time, which specific risks you’re taking, how management and owners are aligned (or not), and why, given all of that, today’s price offers enough upside to justify tying up your capital.
That little write‑up is more important than it sounds. It turns a hazy impression into something you can later revisit and challenge. When the stock inevitably moves up or down, you can compare reality to what you wrote instead of improvising a story after the fact.
Not every name needs to graduate to a full position. Some will clearly be “pass” after you do the work. Others will be “interesting, but too expensive for now,” which you can park on a watchlist and revisit if the price or the story changes. A much smaller subset will emerge as “I understand this, I like the trajectory, I’m comfortable with the risks, and I think the market is mispricing it.” Those are the ones worth serious capital.
How Deep You Go Depends on How Much You’re Betting
You don’t need to spend a weekend modeling a $300 punt. You probably should spend real time on something you plan to make 10% of your portfolio.
Think of three rough levels of effort:
- A quick screen, where you skim the business description, glance at a few years of basic financials, read the most recent risk factors, and decide whether the name even deserves more time.
- A standard pass, where you read the latest 10‑K properly, look at multi‑year trends, scan recent 8‑Ks for significant events, check insider activity, and do a simple valuation cross‑check.
- A deep dive, where you read several years of 10‑Ks, multiple quarters of 10‑Qs and transcripts, go through all recent 8‑Ks, build a basic model, and write a full thesis memo, including what would make you change your mind.
You can absolutely start small: maybe you only ever do the first two levels. The important thing is that you have levels, and you’re honest with yourself about how much work you’ve actually done for a given position size.
Running This Process with Free Tools
All of this is doable with public information:
- SEC filings (10‑K, 10‑Q, 8‑K, proxy) give you the business description, financials, risk factors, governance, and pay plans. You can access them through SEC EDGAR or via a more usable front‑end like Earnings Feed, which also lets you see new filings in real time.
- Insider activity (Form 4) shows you what executives and directors are doing with their own stock. Earnings Feed’s insider hub and specialist sites that focus solely on Form 4s make this easy to track.
- Basic financial data and charts from mainstream finance sites can help you cross‑check your own calculations and see valuation at a glance.
- Earnings call transcripts and investor presentations, usually available for free, give you the tone and nuance around the numbers.
You don’t need to chase more data until you’re actually wringing insight out of what’s already free.
Getting Started
The easiest way to make this real is to pick one company you already know—maybe a product you use every week—and walk through the five questions properly.
If you want the filings to come to you instead of hunting them down:
- Create a free Earnings Feed account and add that company (and any others you care about) to a watchlist.
- Use the live filings feed to grab the latest 10‑K, 10‑Q, and 8‑Ks.
- When you’re curious what insiders are doing, check the insider trading section for recent Form 4s.
Then sit down with a notebook or a doc and force yourself to write out your answers: what the business is, what the numbers say, what could go wrong, who’s involved, and whether the current price makes sense. That’s the whole game. Everything else is just scale and repetition.