LEARN · WALL STREET × GAME DAY
How to Evaluate a Stock Before Buying (The Scouting Framework)
Investing explained in plain English, through sports.
Buying a stock without a framework is guessing. Here's a repeatable process for evaluating any investment, inspired by how sports scouts evaluate players before a club commits transfer money.
THE 5-POINT SCOUTING FRAMEWORK
1. Revenue Growth — Is the Business Expanding?
Revenue growth is goals scored. It tells you whether the business is growing. Look for consistent growth above inflation. 5-10% is solid for a mature business. 20%+ is exceptional but usually already priced in.
Red flags: Revenue declining, or revenue "growing" only because of acquisitions rather than organic business growth.
2. Valuation — What are you Paying?
The P/E ratio (Transfer Fee) tells you the multiple. Compare to:
- The company's own historical P/E — is it cheap or expensive vs its own history?
- Sector peers — is it cheaper or pricier than competitors?
- The S&P 500 average (roughly 22x) — above or below market?
3. Moat — Why Can't Competitors Copy Them?
Great companies have an unfair advantage that's hard to replicate. Look for:
- Network effects: More users = more valuable (Visa, Meta, Google)
- Switching costs: Painful to leave (Salesforce, Microsoft, Adobe)
- Cost advantages: Makes things cheaper than anyone else (Walmart, Amazon AWS)
- Brand: People pay a premium just for the name (Nike, Apple, Coca-Cola)
4. Management — Is the Team Trustworthy?
Shareholder-friendly management matters more than most beginners realise. Look for:
- Do they do what they say? History of delivering on guidance?
- Are they buying back shares (returning value) or diluting you with new share issuance?
- Is insider ownership high? Skin in the game matters.
5. Risk — What Could Go Wrong?
Before buying, write down the three things that would make your thesis wrong. If any of those happen, do you know what you'd do?
QUICK CHECKLIST
- ✅ Revenue growing above inflation?
- ✅ P/E reasonable vs sector peers?
- ✅ Clear competitive moat?
- ✅ Management track record solid?
- ✅ Beta manageable for your risk tolerance?
- ✅ Position sizing appropriate?