Why is this 30-bagger share so unloved?

The due diligence process often begins in earnest. The assiduous investor absorbs everything a company makes public, trawling through annual reports, presentations, webinars, and RNSs. To take things further, they seek out the company’s products in the real world or engage in a bit of scuttlebutt. For the really dedicated, hoping to do as professional investors might, they may even try to question management at investor days, AGMs or via investor relations personnel.

But where does the process end? For a really in-depth understanding of a company, you might want to repeat the process for its key peers, to get a better sense of your target’s competitive edge. Then there’s the broader picture. Due diligence has now broadened to an analysis of customers, counterparties, market sentiment, macroeconomics, and industry-level projections.

In statistics and machine learning, the concept of ‘overfitting’ is used to describe the risk of adding too many parameters to a data model. In investing, even a perfectly rendered picture of a business, its current market position and entire history risks overfitting, as together this information won’t tell us how the business will handle an ever-unknowable future. Inevitably, a lot of the information collected in the due diligence process will turn out to be noise.

So while preparation and research are critical to the investment process, there needs to be a line. For all its recent troubles, the world of venture capital has a fair bit to teach us on this subject. Early-stage investors who are familiar with the risks of sink-or-swim entrepreneurial activity understand better than most that you cannot rule out every risk, and that luck plays a big role. They also know that a series of thoughtful, well-targeted and probing questions can go very far.

This is where 20 Questions comes in. In a new series focused on individual listed companies, we are taking a novel approach to due diligence by pairing in-depth research with questions that try to distil the investment case into one report. The ultimate conclusions we will leave to Alpha readers, but our hope is that the process can help to identify some compelling ideas, or clarify readers’ thinking.