Sell-Side vs. Buy-Side Equity Research

Buy-Side vs. Sell-Side Equity Research: Comparative Analysis

Buy-side equity research analysts work on behalf of institutional investment firms such as mutual funds and hedge funds.

In short, buy-side analysts have “skin in the game” because their investment thesis is not merely a recommendation, but rather, a decision with real monetary consequences.

The commonality between a buy-side analyst and sell-side research analyst is that both conduct in-depth research into potential investment opportunities and closely follow the public markets to identify trends.

An equity analyst must be capable of analyzing a company’s financial statements, including understanding the unit economics that pertain to a particular company or sub-group of companies that operate in the same (or an adjacent) industry.

Once the operating drivers that determine a company’s performance is understood, the equity analyst can form a thesis on the implied valuation and growth potential of a company.

On the other hand, sell-side analysts are employed by investment banks and brokerage firms. On behalf of clients, the sell-side analysts publish recommendations to facilitate informed investment decisions.

However, while the research reports can contain practical insights surrounding a specific company (and industry), the recommendations should not be taken at face value for a multitude of reasons.

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What is Sell-Side Equity Research?

To reiterate, sell-side equity research analysts are typically part of an investment bank and focus on a universe of stocks within one or two industries in order to provide insightful investment ideas and recommendations.

The research reports are accessed by institutional investors, as well as an investment bank’s salesforce and traders, who in turn communicate those ideas with institutional investors.

Certain financial data service providers—such as Capital IQ, Factset, Thomson and Bloomberg—can also resell the data, with notable end users being investment banking clients and M&A advisory services groups, which use sell-side equity research to help forecast company performance in presentations and pitchbooks.

Sell side equity research analysts communicate formally through research reports (and notes) that place buy, sell and hold ratings on publicly-traded companies in their coverage, as well as through less formal direct phone, email and in-person communication with institutional investors.