Part 1: Due Diligence in a Case Study

Breaking down the first bit of our due diligence process with a recently discovered potential gem of a business.

Due diligence is the investor’s toolkit for peeling back the layers of a company, examining its business model, financial health, governance, market dynamics, and even management demeanor. Every investor has their own flavor. Some stick to financial reports, others watch management on YouTube clips to read their body language, and some (looking at you Roaring Kitty) lean on a mix of instinct and signals from the crowd. At the end of the day, diligence is about pulling together both the numbers and the softer signals to build a clear picture of what you’re actually buying.

Due diligence, also called “DD”, isn’t static. The way investors do research changes with time. Companies communicate differently today, and the flow of information is faster, noisier, and more fragmented than ever. If you’re the kind of investor who likes to piece together clues, the “scuttlebutt” approach, you need to be able to pull from new channels, whether that’s social media, foreign-language filings, or digital breadcrumbs buried in press releases. Your view of a business is only as good as your understanding of how it really speaks to the world.

Scuttlebutt

Not that long ago, there were no online resources. Due diligence was all about legwork - reading annual reports, picking up the phone to talk with suppliers, or asking around the industry. Philip Fisher called this the “scuttlebutt method,” and it was about hearing from the people closest to the business. That could be employees, customers, and even competitors. This kind of digging gave you color you’d never find in a 10-K. In practice, it involves researching customer loyalty, company culture, or quirks in how the business really operated. The pragmatic investor then ties all this information together into an intricate tapestry that forms an intuitive mental model of the business. That same spirit still applies today, but the tools investors use have evolved, a lot.

Today’s scuttlebutt investor still hunts for those little details, but now technology helps piece the puzzle together. Instead of just making calls, the investor can scrape reviews, run sentiment checks, or pull data feeds directly into notes and models. The goal isn’t checking boxes on a screen or computing one number; it’s building a feel for how the business actually works in the real world. Deep value investing especially lives in this gray area. The yes/no answers take a backseat to stitching together patterns until the picture makes sense.

Screening for Ideas

We’ve found most of our best ideas show up in the early screening stage. That’s especially true for companies that nobody’s talking about yet. Most of the time superinvestors don’t hold positions (just check on Dataroma). If a stock already has YouTube hype videos, FinTwit threads, and is splattered across your for-you-page on X, chances are you’ll be paying a hype premium. The fun part is sifting through long lists of businesses and stumbling across the ones that haven’t hit the spotlight. We find great opportunities lie here and it’s where the magic happens.

This is exactly what happened recently. We were combing through lists of companies across different exchanges when one equity in particular caught our eye. The numbers looked almost too good: strong growth, little debt, no signs of endless dilution. All trading at a low earnings multiple? It was the kind of profile that makes you stop and double check, because usually there’s a catch. But here, we didn’t find one. This company turned out to be one of only two from its country that are listed in the US.

Once a company like this catches our attention, the next stop is Yahoo Finance. It’s a quick way to confirm the basics - valuation statistics, the financial history, and getting a sense of price over time. This is where you start forming some questions. What’s the market paying for this business compared to what it generates in sales or cash? How does this compare to competitors? Are there competitors? Are reinvested dollars producing good returns? Is growth steady? And importantly, is share count creeping up, or is management rewarding shareholders with buybacks or dividends?