Note: This article is part of a broader series on how to prepare for growth equity interviews
Pitching a stock is crucial for hedge fund interviews, but it can also be an important part of private equity, growth equity, and even venture capital interviews. I know this firsthand from my own interview process with General Atlantic and other top private equity and growth equity firms I interviewed with.
Because it’s such a common and important part of interviews with so many types of investment firms, it’s an aspect of interviews for which candidates should definitely prepare. Below is the definitive, step-by-step guide to understand and to prepare to pitch a stock in an interview.
What is a stock pitch?
A stock pitch can take multiple forms, but usually, it is a short memo or presentation that makes the case to invest in a public company’s stock. The pitch uses data and analysis to support the recommendation to invest in the stock. Usually, this includes valuation metrics, “why now” investment catalysts, and an analysis of risk factors.
Stock pitches can be used in buyside interviews, which I describe in more detail in the sections to come. However, stock pitches can also be used in networking, investment clubs, investment competitions, personal investing, and of course on-the-job responsibilities as a professional investor.
Stock pitches in buyside interviews
Stock pitches are important elements of many types of buyside interviews. They are most commonly seen in hedge fund interviews, which makes sense given many hedge funds actually invest in public market equities.
Hedge fund candidates should plan on preparing 2-3 stock pitch ideas to have at their disposal during interview Q&A, but it’s also very likely that the hedge fund will assign a formal take-home case study for interview candidates too. The candidate will prepare the pitch ahead of time, and will present it during an interview session.
It may be surprising, but stock pitches are also very common in interviews with private equity, growth equity, and even later stage venture capital firms, even though they usually invest in private companies. The reason why is that stock pitches provide an easy vehicle to assess one’s investment judgment and communication ability by discussing companies that are prominent and about which much information is publicly accessible.
Further, growth equity and venture capital firms LOVE finding candidates with a strong passion for investing. That is, they want people who are “addicted” to following markets and who invest on the side for fun. Usually, the best way to test for this is whether the candidate can demonstrate he or she “has a view” on the markets and on a particular stock, in this case.
What are the types of stock pitch interviews?
Generally, there are two kinds of stock pitches in buyside interviews:
#1: Stock pitch as formal presentation or case study
First, there’s the formal stock pitch presentation. This is when the stock pitch is a take-home case study where you prepare slides or a memo in advance of formally presenting the case to an audience during an interview. Usually, the presentation lasts ~15-30 minutes with lots of Q&A to follow. As discussed above, this type of stock pitch is most common in hedge fund interviews.
- Usually, your interviewers will not assign you a specific company to pitch; it’s up to you to do the research and find one.
- If they do give you a specific company, then it’s likely a time-limited case study where you get a prescribed amount of time (e.g. 2-4 hours) to learn about the company by reading its filings, to build a quick model, and make basic pitch materials. This will usually occur in the firm’s offices to ensure an equal playing field.
#2: Stock pitch as casual interview questions
Second, there’s the casual interview question stock pitch. In my experience, this is the most common way stock pitches are conducted during interviews in general, but as I said above, this is the usual way for private equity, growth equity, and venture capital firms to ask for a stock pitch during interviews.
These stock pitches tend to be more conversational with lots of back-and-forth. Rather than being a formal case study presentation, the ‘pitch’ in these cases is more like a component or line of questioning within an ordinary interview.
Usually, your interviewer will ask you something like “tell me about a stock (or industry) that you like,” and then they will ask several follow up questions. While there is not a formal presentation with slides or a memo that you need to prepare in advance, the content of the discussion should cover many of the same topics, just in a more casual setting.
What is being assessed in a stock pitch interview?
No matter which type of stock pitch you face in your interviews, there are a few key things your interviewers are assessing:
- Investment judgment – while you don’t need to have the best investment pick ever, you do need to show you understand investment fundamentals by finding something that makes sense, that you’ve thought through, and that is defensible
- Communication – it’s critical that when you are discussing your stock pitch you can articulate the key points clearly and succinctly; you want to show that you could discuss investments with teammates and larger audiences while on the job
- Poise & debate skills – whether it’s a “formal” stock pitch presentation that you’re delivering or it’s a casual interview question, expect that your interviewers will challenge your points and ask lots of questions; they want to see that you can defend your arguments forcefully, but also concede when it makes sense too
- Love for investing – the dream for all growth equity, private equity, and venture capital firms is to find candidates who are passionate about investing and would authentically do it in their free time if they couldn’t do it professionally. If you can show desire and energy for investing in your pitch, that’d be very positive
- Understand the firm’s strategy – make sure your stock pitch doesn’t contradict the firm’s strategy; it’s not always possible or realistic to prepare new stock pitch ideas for every new firm you interview with, but still, you want to make sure you aren’t pitching something totally disconnected from what the firm focuses on (e.g. pitch a bank stock to oil & gas investors). Note, you can also soften the blow of any mismatch by at least showing in your answers an awareness of where your pick may or may not overlap (e.g. “I know you don’t invest in real estate technology, but I found an interesting stock in the sector that I’d be excited to discuss”)
My personal experience
This is going to sound like an exaggeration, but it’s not: this article could be the single thing that makes the difference in landing your dream job. It was for me – let me explain.
When I was preparing for my own interviews (focusing on growth equity, private equity, and late stage venture capital firms), I was an investment banking analyst at Deutsche Bank. The growth equity fund General Atlantic was my top choice, and through diligent networking, I was able to get an interview with the firm!
A few days before my interviews, one of my mentors, a wise third-year analyst, gave me some unsolicited advice that would change my life. He said, “You know, not all funds do this, but for your General Atlantic interviews, I’d really prepare a stock pitch if I were you, just in case.”
The comment rocked my world! I thought stock pitches were only for hedge fund interviews, not growth equity and private equity interviews! But I trusted the analyst. So I decided to use my remaining time before the interview – just a day or two – to prepare a stock pitch, just in case. I chose to pitch for American Tower Corporation, the leading cellular tower company at the time.
Fast forward to my superday interviews at General Atlantic a few days later. Guess what happened? In my 5 interviews, I was asked to talk about a stock that I liked in every… single… interview!
The interviews went well enough, and I ended up getting (and accepting) an offer from General Atlantic!
Without my friend’s advice, I would’ve fallen flat on my face. It literally was the difference in me landing an offer at my dream fund. Without General Atlantic, my whole career might’ve been different …
Consider this your own intervention! Prepare a stock pitch, it could change your life in interviews too 🙂
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How many stock pitches should I prepare for an interview?
If a firm wants you to prepare a formal stock presentation for your interviews, they will designate how many stocks you should include. Typically, it’s only one. However, as explained above, the stock pitch often comes up in interviews through more “casual” interview questions (e.g. “Tell me about a stock or sector that you like”).
That’s why, even if the firm with which you are interviewing doesn’t specifically ask for a formal stock pitch presentation, I still HIGHLY recommend candidates be prepared with AT LEAST one stock pitch for your interviews. You don’t need to prepare a polished powerpoint or memo, but you should more or less follow the rest of the steps below to prepare. The goal is for each stock pitch, you are equipped to talk about it easily and from memory, even though you aren’t submitting any formal materials.
If you have the time and want to be even more prepared for growth equity, private equity, and late stage venture capital interviews, I recommend candidates prepare a total of three stock pitches (two stocks you like, one stock you don’t like).
If you go the extra mile in this way, you should still spend most of your time preparing for discussion on the primary stock you like, but it can be really helpful to have the extra stock pitches in your back pocket, just in case.
What is the structure of a stock pitch?
If you’re assigned a formal stock pitch presentation for your interviews, I typically recommend structuring your memo or powerpoint using the tried-and-true sections below.
- Company overview
- Investment thesis
- Why now
- Valuation & returns
- Risks & mitigants
Note, these sections should largely be followed regardless of whether the firm has asked you to prepare slides or a written memo.
Also, even if you haven’t been assigned a formal stock pitch presentation, the form above is still a helpful way to structure your preparation and learning.
How long should a stock pitch be?
If you’re asked to formally prepare and present your stock pitch in an interview, typically the firm will give you guidance on how long the stock pitch should be (either number of slides or memo pages).
Usually, a memo document will be 3-5 pages, and slide presentations will be no longer than 10 slides (1-2 per section above). Keep in mind you will likely only get 15-30 minutes to “present” your pitch, so it will need to be succinct.
Of course, if you’re asked about a stock pitch in a more casual interview question format, rather than a formal presentation, there will be no written component of the stock pitch and the length of the conversation will depend on the direction of your conversation.
In this format, there is usually no prescribed length of time the stock pitch questions will last; it will depend on how your conversation is going and where your interviewer wants to take things. The conversation could last anywhere between 5 minutes and 20 minutes, taking up a large chunk of a typical 30 minute interview conversation.
Prepare your stock pitch, in 3 steps
Let’s be real. To really understand an investment you’re pitching, you’d need to read thousands of pages and do countless hours of research. That’s what you’d do on the job, before making an actual investment.
You obviously won’t have that kind of time to throw at every stock pitch you prepare for your interviews – you have a day job after all! Obviously a full case study or take home assignment will demand more preparation time, but still you need to be smart about how much time you allocate to preparing the stock pitch.
That’s why I recommend streamlining the prep process by taking the following research steps to harden and prepare your pitch:
- Step 1: Pick a company
- Step 2: Do supporting research & analysis
- Step 3: Prepare presentation materials
I will discuss each step in detail in the coming sections.
Step 1: Pick a company
There are many ways investors source investment ideas – from firsthand research with industry participants, to reading industry news, etc.
Given my training and experience as a growth investor, my first inclination is to always look for investment ideas by first looking for attractive markets and trends. Once you find an attractive market, then you find public market companies that are well-positioned to become leaders in this market over the long-term.
To find attractive industries, I recommend getting smart on large economic or technology trends through news articles, podcasts, and any other media you come across. A few places I’d recommend to look for find great markets and emerging trends are:
- Startup funding newsletters (e.g. Axios, Forbes, and Techcrunch)
- Media outlets with strong technology reporting (e.g. NYT Tech, Vox, Buzzfeed)
- Sell-side equity research, if you have access
Alternatively, you can also come up with ideas by screening bottom’s up for companies themselves. To do this, you pick a market or industry (ideally, one that you have some expertise in), and then filter for companies based on your investment criteria (see next subsection).
Filter companies based on these criteria
When screening for companies to pitch, I generally recommend using the following high-level guidelines to narrow down which stock you should select:
- Related to the firm’s strategy – If you’re interviewing for a fund that specializes in growth technology investments, you should pick something that’s growing quickly, rather than, say, a merger-arbitrage or special situations investment
- Clear “why now” catalyst – You’ll want to pick a stock that’s benefitting from new trends or tailwinds; this could mean the market they sell to has started to accelerate or it could mean the company’s stock just had a correction that was not based on fundamentals
- “Pure-Play” businesses – Especially if you’re interviewing for growth or venture funds, I like picking a business that is a “pure play” so then the discussion about the company can easily become a proxy for a discussion about the company’s market (and vice-versa)
- Avoid highly technical businesses – Picking companies in complicated industries like Oil & Gas or certain areas of financial services is very treacherous unless you already have expertise and the firm you’re interviewing for specializes in such investments; it’s always best to pick a business that’s easy to describe in interviews
- Avoid messy or complicated businesses – Again, to give yourself the best chances, do not pick anything that’s messy (e.g. legal trouble) or complicated (e.g. operates 100 different business units); you want to be able to describe the business and its market quickly given the limited time available in your interviews
- Avoid the “crowded” or obvious trade – When I was interviewing for investment banking out of undergrad, I remember an interviewers once asked me, “Tell me about a stock you like; you can pick any stock, just don’t pick Apple.” He was tired of undergrads pitching him on the same obvious thesis. Follow the same advice, and avoid anything super obvious like Apple, Amazon, or Tesla (any FAANG really), unless you have a unique angle
- Avoid companies that are massive already – If you are interviewing with growth-oriented firms (i.e. growth equity or venture capital), I’d generally avoid any stock that already has a massive market cap ($50 billion or more), since it could be challenging to make the case about how much bigger these companies can become
Criteria for growth equity and venture capital
In growth-oriented investing, the goal is to find high quality companies in the fastest growing markets. In your stock pitches, unless your interviewer gives you specific instructions, you should select companies that fit similar criteria. It would fall a bit flat if in your growth interviews you started discussing a distressed restructuring investment.
You can use my favorite growth investing framework of all time to find and vet high quality growth companies. The framework is called the 3M’s:
- Market – Does the company operate in a fast growing end market that will see sustainable growth over the next decade? Is it a leader within this market, or is it on a trajectory to become one?
- Model – Does the company have a durable or defensible business model, so that it can remain valuable over the long-run?
- Management – Does the company have an ambitious and capable management team that can execute on its grand vision?
Of course, this framework doesn’t take into account other factors that can matter in an investment (e.g. valuation, exit assumptions, etc.). However, if you get the 3Ms right, typically a growth investment will be very successful.
In growth equity and venture capital interviews, you can also get the interview question “tell me about an industry or market that you like.” One advantage of following the 3M framework above is that the company you select will have a large and growing market it sells to, which means your research for the stock pitch can potentially be recycled the question about markets you like as well.
Criteria for private equity
When interviewing with private equity firms, there’s a slight nuance you may want to consider when picking a stock to pitch. That is, you might be tempted to pick a company that would be an attractive LBO target, since this would comport with the investment strategy of the fund you’re interviewing for.
However, there can be a difference between a good LBO target and a good public market investment. This might be the case if the company meets all the criteria for an LBO (steady cash flow, defensible business model, etc.), but is too poorly managed or under-leveraged to make a solid return as a public company. Therefore, it might be a good company to take private as an LBO, but not necessarily a good public company stock.
For your private equity interviews, ideally, the stock you pitch would be both a good LBO target and a good public market investment. That way your preparation is as efficient as possible, since you’re getting a double-whammy.
However, if you’re struggling to find such a company, I’d first prioritize finding a good public market investment. Then, if you have more time, you should separately pick a second company that would be a good LBO target that you can also talk about, if asked.
Step 2: Do supporting research & analysis
Alright, so now you’ve got a company whose stock you’d like to pitch. Now, it’s time to do some supporting research and analysis to harden your pitch.
In this step, it can be very challenging to know just how much time and effort to spend on this research before interviews. How much is enough? How much is too much? It can be very tough to know.
Especially as overachievers, our tendency can be to either go overboard and spend too much time preparing (or feel guilty and underprepared since you haven’t gone overboard).
Below is a list of research steps I recommend to harden and prepare your pitch in the most time-efficient way possible:
- Research the company – After selecting your company, you should read its latest annual report, quarterly reports, and its most recent investor presentations. You should also check out the company’s latest press releases, and generally know what’s going on with its product releases and main business efforts.
- Research the industry landscape – You should also research the industry by skimming the latest fillings from the company’s main competitors. From the research, you should determine how fast the market is growing, who the main players are, who is gaining share, and how their respective strategies could impact your company.
- Build a very simple valuation model – Aim for a lightweight 3-statement financial model to understand the company’s trajectory, with a DCF and returns calculations included. Whatever you do, do NOT build a complicated model. It won’t be helpful. Instead, shoot for a simple model ~200 rows in Excel, so you can understand the company and sensitize with its key drivers.
- Do quick industry comps – To get a sense of relative valuation, you’ll need to do a quick trading comparable company analysis. This means pulling trading prices and multiples for its competitors or similar companies. Don’t scrub the data manually; that’s overboard. Just use Capital IQ or FactSet if you have them, or Finviz and Yahoo Finance if you don’t.
Step 3: Prepare presentation materials
Now that you have picked your stock, and you’ve done the key research and analysis to support your pick, now you need to organize your recommendation into a formal stock pitch presentation.
Note, this is only relevant if you are assigned a formal stock pitch presentation (take home assignment). If you are simply preparing stocks to talk about in your interviews in case you’re asked, I still recommend you arrange your thoughts according to this framework (it will help them stick in your mind for interviews), but no need to prepare formal materials of course.
The formal stock pitch interview presentation will either be done in written memo format (~3-5 pages) or powerpoint slides (~5-10 slides max). The desired format should be dictated to you by your interviewer. If they didn’t tell you whether to do a written memo or powerpoint slides, you should ask them what they prefer.
Formatting your pitch
In arranging your stock pitch, you should follow this classic structure. There’s no need to try to innovate on this standard format which has worked for many years:
- Recommendation – Summarize your stock pitch by stating the company, it’s current price, and your buy/sell recommendation
- Company overview – Give a brief background on the company, including what its main products/services are, how the company makes money, what it’s high level financial metrics are, and what it’s relevant valuation metrics are
- Investment thesis – Explain the 2-3 key reasons you believe the market is wrong and that this investment will create outsized value in the future; while every thesis will be unique, ultimately the thesis should ladder up to either an increase in valuation metrics or company growth
- Catalyst – Explain why now is the right time to invest in the company’s stock, and why the rest of the market will appreciate the stock more in 6-18 months; for example, this could be a temporary valuation discount, new product launches, faster market growth, an upcoming earnings release, expected divestitures, clinical trial results, etc.
- Valuation & returns – Show the company’s current valuation metrics (e.g. P/E, EV/Revenue, EV/EBITDA, DCF) are lower than comparables and/or intrinsic value; show how returns might change with different entry or exit assumptions
- Risks & mitigants – list the 3-4 most critical risks that could sabotage the investment, and give brief rationale for why these risks are either unlikely to come to fruition or, if they do, their impact will be limited
Note, these same sections should largely be followed regardless of whether the firm has asked you to prepare slides or a written memo.
What should I memorize for a stock pitch?
During your stock pitch presentation, you will of course have access to the slides or memo you prepared for the take-home assignment. Hopefully during the course of your research you’ve internalized the key facts, though, so you can do most of it from memory.
Just in case you didn’t internalize them though, here’s are the key things you should be sure to commit to memory before your stock pitch:
- Current and prior year financials (i.e. revenue, EBITDA, EBITDA margin, cash flow, growth rate)
- Projected financials in 5-years (i.e. revenue, EBITDA, EBITDA margin cash flow, projected revenue CAGR)
- Approximate stock price, market cap, and enterprise value
- Approximate capital structure (i.e. debt as % of enterprise value, debt to EBITDA)
- Recent large price changes, if any
- Name and background of CEO
- Names of 3-5 competitor companies
For each of these numbers, what matters is the big picture, so do not worry about committing the exact number with decimal points to memory. Just round to the nearest million (or 5 million), as appropriate. It will sound more authentic anyway to say “They did around $110 million of EBTIDA this year” rather than “They did $107.8 million of EBITDA this year.”
How should I describe the company?
To show you really understand the company, one framework I love to use during stock pitch Q&A and interview questions is the “Top line / Bottom line” framework.
There are many pieces of information that one must understand in order to understand a company’s stock pitch. There are current trends, industry dynamics, recent financials, regulation etc.
I’ve found the “Top line / Bottom line” framework can be really helpful in getting your audience (and yourself) to streamline and organize this information in a digestible way.
Here’s how it works: When telling the company’s “story,” break things down into two narrative points – the first point is what’s the overall “top line” (revenue) story, and the second is what’s the overall “bottom line” (expenses and cash outflows) story. By roughly aligning the story of the company with the structure of the financial statement, you give your audience (and yourself) an easy way to internalize the pertinent details and what the implications are for the pitch.
Here’s how to do it, step-by-step:
- Start by describing what’s happening with revenue (“top line”) – give the pertinent highlights for the company’s market size, market share, and growth opportunities. Here you give a sense of what the company’s overall revenue opportunity is, and how it will evolve over the investment period.
- Now, describe dynamics related to how much of that revenue it will ultimately keep (“bottom line”) – for a company to create enduring value, it must not only have revenue, but it must have sustainable margins. That’s why next you will tell a narrative around what’s going on with its margins and cash outflows (e.g. capex), and how you anticipate these will evolve over the course of the investment.
Here’s an example of what this could sound like:
I believe Airbnb continues to be an exciting investment prospect. (Part 1: Top Line) Airbnb is the market share leader in its core home sharing category – which continues to grow at double digits every year. Meanwhile, there is significant revenue upside for the company if it can take greater share in the hotels category, which is massive. This is why I believe Airbnb will continue to grow quickly – currently, over 30% per year – even while at a massive scale. (Part 2: Bottom Line) There are indeed risks that cost pressures from marketing and customer acquisition will become a concern – and this is something I want to watch closely – however, I believe Airbnb will develop and maintain strong defensible margins over the long-term given its strong brand, global network effects, and first-move advantage.
As you can see, this framework is a great way to organize your thoughts and then share with others what’s going on with the company, in a succinct way. It is especially effective for growth-oriented investments – where the crux of the investment hypothesis relates to the company’s topline performance, rather than, say, near-term valuation considerations – but it can also be helpful to describe other investments too.
Practice, practice, practice
If your stock pitch is a formal take-home assignment and presentation, I’d strongly recommend you practice out loud several times. Go through the pitch, and then ask yourself (and answer) several challenges you expect to get. It’s the age-old saying, but practice is truly critical to success in these.
Even if you don’t have a formal stock pitch take-home assignment, it’s still highly recommended that you practice talking about the stock you will talk about, if asked. Give a high level summary of the investment and describe the company’s growth prospects, key risks, and mitigants. Be prepared to go deep if pressed.
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Stock pitch mistakes to avoid
I’ve mentioned several pitfalls to avoid throughout; however, I’ll add few more important ones here:
- Don’t create an overly complex model – This is usually a recipe for disaster in any case, but especially for an interview. Just make sure the basics are working, and don’t over complicate it
- Don’t get worried if you face intense questioning – This is a good sign, as it means they are trying to challenge you. Interviewers tend not to challenge candidates who they’ve already ruled out.
- If you don’t know something, just admit it – There’s no way you’ll know everything about this company. Interviewers largely understand that. If you’re asked something you don’t know, just be frank, admit it, and talk a bit about why you agree (or politely disagree) about why that data point might be helpful. Offer to follow up with the requested information after the interview.
- Don’t pretend like you’re stock pitch is riskless – This is a classic newbie mistake. Every investment opportunity has risks; don’t pretend like yours doesn’t. Talk about the stock and its risks in a balanced way, acknowledging the possibility things could go badly, but calmly discussing how or why you think they won’t. The best way to “sell” people on your recommendation is to go through the thesis and risks in a balanced, sober, and calculated way.
Alright, that’s it for now. Also, if you want to go deeper, check out my other articles or my complete guide to growth equity interviews. Feel free to email me any questions, and I’ll get back to you as soon as I can.