Awesome Tool for Investors: Trefis

Jan 13th, 2010 by Carlos

Through and through, I’m an index-fund guy. I think it’s the easiest, cheapest, and safest way to invest in the long term. I have gone so far as to call index funds magical.

But I still like to research and pick individual stocks, especially now that I’m dabbling in the options market. It’s fun and it keeps me in the loop with what’s happening in the world of business.

So anytime there is a tool or site out there that can help me learn more about a company’s business, I’m all for it.

A few weeks ago I discovered Trefis and so far I’ve been impressed with what they’re doing.

What is Trefis? It’s a site that allows you to fiddle with certain assumptions and forecasts about a company to see how those assumptions could influence the stock price.

The site can be broken down into three basic parts.

Trefis: The Tool

Instead of focusing on what a company has already done, Trefis focuses on the future. What if this or that happened? How would that affect the stock price? At the core of the Trefis experience is their tool, which lets you explore the future of a company via their different parts.

Let’s take Amazon (AMZN) for example, since they are my stock pick for 2010 and I have an options position in the company. Here is what Trefis analysts think the stock price should be based on their forecasts:

You can see that the stock is priced at $127 but the Trefis model as shown above values it at $113.

Here’s what’s cool about Trefis: they’re showing you how much each division affects the stock price. Some of my Amazon analysis focused on the continuing success of the Kindle, but it only comprises 5% of the business Amazon brings in.

Trefis allows us to go into the Kindle “branch” and toy around with the forecasts:

If I think the Kindle’s price is going to be any different from the model, I can change it by dragging those circles up or down for the next six years. Any movement there affects the “Trefis stock price” for Amazon. You can do this for Kindle Units Sold and Kindle Operating Margin.

How does Trefis know how much the price of the Kindle in 2016 will affect the stock price? They don’t. It’s all based on models, estimates, and forecasts. Nothing is exact here, but it’s still very useful to see how one part of a business could affect the overall price of its stock.

Sloshing through financial documents is pretty boring, but playing with the tool can give you a sense of the business without putting you to sleep.

Trefis: The Research

Trefis also has a pretty detailed overview of the companies it covers. Taking Amazon as an example, they have a business summary, key trends, and sources of value. It’s concise, but it gives a nice explanation of the assumptions behind the analysis and the numbers punched into the tool.

Trefis only has a few companies in their system right now, but they’re looking to add a lot more. This is one of the downsides to the site—you may not find the stock you’re looking for right away.

Trefis: Social Media

Along the right side of a company page you’ll see comments by other Trefis members on what they think about the stock. It isn’t mindless screaming and yelling that a lot of sites have, it’s actually smart, insightful commentary that gets you thinking about the different problems surrounding a company.

Not only that, you can also save and share your own models you’ve built using the tool so others can scrutinize and discuss. Maybe you agree and maybe you disagree, but either way the more you discuss the pros and cons of a model, the more you’ll wind up knowing about a given company.

Trefis: Wrap Up

I’ve been using Trefis for a few weeks and I’m impressed: they’ve managed to create something that makes investing fun without dumbing it down. Not an easy task. It’s great for beginners looking to get into stock picking and good for seasoned investors looking for another point of view on their valuation or opinion of a stock.

They also send you emails whenever something significant happens in the news and how it might affect the model and the stock price. Usually these emails are thoughtful and well written. For more on Trefis, check out this comprehensive article on Forbes.