How to learn about a company


Over the past few weeks, I’ve written two articles about the share market. The first explains to you how I started buying shares myself rather than using a real live broker. I stressed how important it is to learn as much as you can about a company you’re interested in before you buy any of its shares. If you haven’t read that, check it out here.

In another article, I took you through the steps needed if you do decide to buy (or sell) shares online. It’s pretty straightforward. At the end of this article, I again emphasised that you must do the leg work and learn about the company before you even think about becoming a shareholder. Actually choosing what shares to buy isn’t straightforward.

But in this article I want to go one step further. I’ll regularly take you through companies that might appeal to you and show you what ‘experts’ look at when they recommend a share. One thing I’ve learned is that you buy shares in companies that you know. Look around you and see what people are buying. Are the supermarkets crowded? That could mean buying shares in Coles or Woolworths could be good – if they’re at the right price. What about JB HI-FI? If you go into a store, is it packed with customers eager to buy? That’s a good sign if it is. Next time you walk past an Apple store, take a look at the queue. No wonder why this company’s share price is so high! The queues are always long and Apple is so good the way it treats customers. During COVID, staff were there giving out free masks so nothing could prevent a potential customer from walking in a store. No wonder it’s now the world’s most valuable publicly-traded company — it knows how to put its customers on centre stage and it’s always selling products to them!

But let’s go far away from giants like Apple and start with a much smaller business.

Now don’t freak when I ask you to do this next thing! I want you to look at the chart below that shows the movements in the share price of a company called Kip McGrath Education Centres, which has been around for years — you might’ve heard of it. The first centre opened in Maitland NSW in 1976 by school teachers Kip and Dug McGrath. So yes, there was a real Kip McGrath, who’s now 68, still owns about a third of the company and is chairman. His son, Storm is CEO. The business provides Maths and English tutoring to primary and high school students.
Its share price has fluctuated a lot over the last five or so years. See how it climbed for a short time before 2006 and then has gone up and down for years, though there’s been a slow but rising trend since 2012 approximately.

Chart: Kip McGrath Education Centres

Source: ASX

If you want to buy shares, you have to dig into the history of a company and also track its share price. You need to familiarise yourself with the business. When I said that one of the founders still owns a third of the company, that can be good and bad. On the good side, it means they’re still driving the business and hopefully doing that with passion. But with the son CEO, it could mean it’s still a family business and that potentially could hold it back — maybe not enough independent thinking there.

Tony Featherstone is a respected financial journalist and he thinks this company is well placed to benefit from COVID-19 changes to learning. Let’s see why Tony thinks this.

“There’s no doubt many kids will fall behind because some schools has poor online teaching facilities and digital skills. Or because some kids have slackened off and escaped their teacher’s attention in online schooling,” Tony observed.

“The online-learning boom could be the making of Kip McGrath. A company that for years relied on “shopfront” learning services looks far more interesting as an educational technology (edtech) play,” he added.

Tony said that the jump in online lessons was a good push for Kip McGrath, with growth in June 2020 up almost 300%, year-on-year (albeit off a low base). He believes online learning will boost the company’s margins and profitability.

“The easing of COVID-19 restrictions over the next few months (even in Victoria!) should help Kip McGrath in three ways:
1. There should be a recovery in Australian and New Zealand lesson numbers when more students can physically attend tutorials. Kip McGrath said lessons were at 80% of pre-COVID volumes in August. The bounce-back should be even greater in markets such as the United Kingdom, where Kip McGrath operates.
2. Parents will seek additional learning services to help their kids catch up on lost learning during the pandemic.
3. COVID-19 has accelerated the move to online learning and its community acceptance. Having watched their kids learn online, many parents realise digital platforms will become a bigger part of the learning mix.

“That’s good news for Kip McGrath and other corporate-owned tutors that can provide additional online learning at scale, or blend face-to-face and digital teaching,” Tony said.

All that sounds pretty good but never look at just the positives. You must always check out what could go wrong because it’s these things that will affect its share prices. This company has some major competitors that it has to deal with like IDP Education (the leader of the pack) and 3P Learning to name just two. In fact, Australia has more than 600 edtech companies and that’s just a drop in the ocean compared to the global number! And Tony has reported that the edtech sector is behind the curve when it comes to digital transformation, which requires a lot of money to do. And he notes that educational providers are risk averse.

So I’m not saying for a second that you should buy this stock. Far from it. This is a stock suited to experienced investors who understand the risks in investing in smaller companies like this.
What I am saying is that you’ve got to do your homework and lots of it. Even while writing this article, I learned a lot about edtechs — and I’ll be a bit gun shy putting my money there.
Never buy anything without getting good advice — that’s a not negotiable rule. You must do your research and that entails a lot of work beyond what I’ve written.
Use these articles as a base for understanding what you need to do BEFORE you take the plunge and buy a stock. Do that and you’re heading in the right direction to make money from shares.
And finally, start looking around at what people use and buy and that will start to give you an inkling into potential shares to put on your watchlist.

Hope you’ve learned something here. I’ll be back with more!

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.



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