America’s Next Top Stock Model

Let’s say you’re an investor who has been following Hewlett-Packard for ages. The company’s slowing printer sales concerns you, largely because you think this may be a long-term issue rather than a short-term blip. Meanwhile, you’re bullish as all get out about H.P.’s services business.

Coming up with a financial model to capture your intuitions can prove tricky, especially if you’re a philosophy major like me. And so, a start-up called Trefis has stepped in to fill a void, lending a hand to liberal arts majors and avid investors alike by giving them some pretty easy-to-use modeling tools.

The pitch behind Trefis is that most financial Web sites churn out a bunch of numbers without really giving people a solid means for looking at the underlying fundamentals of a business. If Cisco, for example, comes out with a new router, maybe you want to check on how big its router business is these days and what kinds of margins the routers produce. Can you get a feeling for how much a flashy new router will contribute to Cisco’s bottom line over the next five years?

Financial services companies have long explored these questions and concocted detailed financial models of the companies they follow. More often than not, though, this research goes to other insiders in the financial world like mutual fund managers and hedge funds.

“They are focused on institutional clients,” said Cem Ozkaynak, one of the Trefis founders. “They don’t care much about the individual investor.”

Trefis, by contrast, aims right at individual investors, giving them similar, sophisticated models.

The founders didn’t drop any vowels from the company’s name. But don’t let that fool you. Trefis is a Web 2.0-type start-up and has the software to prove it.

People wanting to try out the service can log onto the Trefis Web site and then begin meddling with models.

At the moment, you can only dig into about 50 companies - most of them technology and media giants. The Trefis founders have math and Wall Street backgrounds and have set up their initial models for these companies. It’s then up to you to begin tweaking.

The software is pretty slick.

As mentioned, you can click on Cisco and then click on its router business. Trefis then begins asking questions about your expectations for things like Cisco’s router market share, revenue and margins. Any changes you make are fed back into the model, and Trefis comes up with a projected share price.

Given the Web 2.0 leanings, there’s, of course, a way to compare your models against those from other people and to subscribe to other peoples’ models. There’s a Facebook button too, so you can impress ex-girlfriends with the depth of your graphics chip margins knowledge and grasp of the worldwide dynamics affecting printer ink pricing.

As for Trefis’s own business model, there’s a big Web 2.0 caveat. The company’s sales plan seems murky at best for the moment.

There’s talk of running ads on the site, setting up pay services for extra features and maybe charging for access to the top forecasts or even letting people charge for their own forecasts.

“Experts, suppliers, customers, bloggers — they can all create their own models and put a price tag on them,” Mr. Ozkaynak said.

Last month, my colleague Claire Cain Miller wrote about a complementary type service called KaChing where amateur investors and pros show off their skills managing portfolios. As with Trefis, you can subscribe to an investor and mimic his trades.

Perhaps these new tools will put some added pressure on the sell-side professionals - many of whom are notorious for creating overly optimistic takes on the companies they follow.

Previous post's: A Modern Public Plan

Home - About us - Register - Downloads - Download Toolbar - Contact us