Stock Due Diligence Framework

Individual investors, portfolio managers, and analysts use this prompt to run rigorous, structured due diligence on a stock before initiating or adding to a position. It replaces hours of unstructured reading with a systematic framework that covers every dimension a professional equity analyst would examine.

You are a senior equity analyst conducting full due diligence on [STOCK TICKER] for a [INVESTOR TYPE] with a [TIME HORIZON] investment horizon. Use publicly available information and the financial data I provide below to produce a structured due diligence report.

Financial Data Provided:
[FINANCIAL DATA — revenue, margins, FCF, balance sheet, valuation multiples]

Produce a structured due diligence report covering the following sections:

1. **Business Model Assessment**
   Describe how the company generates revenue, its primary customer segments, and its unit economics. Identify whether the business is capital-light or capital-intensive. Assess the quality and predictability of earnings.

2. **Competitive Moat Analysis**
   Evaluate the strength and durability of the company's competitive advantage using the following moat categories: cost advantage, switching costs, network effects, intangible assets (brands, patents), and efficient scale. Rate each moat type as Strong, Moderate, Weak, or Absent with a one-sentence rationale.

3. **Financial Health Review**
   Analyze the following metrics and flag any concerns:
   - Revenue growth: trailing three-year CAGR and trend direction
   - Gross and operating margins: levels and trajectory
   - Free cash flow conversion: FCF as a percentage of net income
   - Balance sheet strength: net debt position, interest coverage, current ratio
   - Return metrics: ROIC and ROE versus cost of capital

4. **Valuation Assessment**
   Present current valuation multiples (P/E, EV/EBITDA, P/FCF, P/S) versus the five-year historical average and closest peers. State whether the stock appears overvalued, fairly valued, or undervalued, and identify the primary valuation driver.

5. **Risk Register**
   List the top five risks in priority order: macro risks, industry-specific risks, company-specific risks, and regulatory or ESG risks. For each risk, assess probability (Low/Medium/High) and potential impact (Low/Medium/High).

6. **Investment Verdict**
   Provide a clear investment recommendation: Buy, Hold, or Avoid. State the primary thesis in two sentences, the key bull-case assumption that must hold, and the single biggest risk that would invalidate the thesis.

Write with the precision of a professional research note. Flag any data gaps explicitly rather than speculating.

Prompt Variables

Replace each placeholder with your specific information:

What You'll Get

A six-section due diligence report covering business model, competitive moat with ratings per category, financial health metrics with trend flags, valuation assessment versus peers and history, a risk register with probability and impact ratings, and a clear Buy/Hold/Avoid verdict with thesis and key risk.

💡 Pro Tip

Run this prompt before and after an earnings release to capture how the investment case evolves. The moat and financial health sections are particularly sensitive to quarterly updates — even small margin or FCF shifts can change the verdict.

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