Using Alternative Data as a Tool for Predicting Stock Prices

In the world of investing, traditional metrics like revenue growth, earnings per share, and price-to-earnings ratios have long dominated the conversation. However, as markets become more complex and competitive, savvy investors are turning to alternative data as a powerful tool for gaining an edge. From job postings to social media followers, alternative data offers a fresh perspective on a company’s performance and potential, giving investors an edge in the market.

Notably, alternative data often serves as a leading indicator of company performance, offering real-time insights, whereas financial reports typically act as lagging indicators.

What Is Alternative Data?

Alternative data refers to non-traditional datasets that can provide insights into a company’s operations, customer behavior, and overall market sentiment. Unlike conventional financial data, alternative data often comes from external sources such as websites, social media, or public records. These insights can reveal trends and anomalies that traditional data may overlook, giving investors a more comprehensive understanding of a stock’s potential. Because it is often real-time, alternative data can act as a crucial early warning system for identifying opportunities or risks before they appear in quarterly earnings reports.

Key Types of Alternative Data for Stock Research

1. Job Postings

The number and nature of job postings can be a leading indicator of a company’s growth and strategy. For example, an increase in hiring for software engineers might signal a tech company’s investment in new products, while a slowdown in hiring could indicate caution or restructuring.

2. Employee Ratings

Platforms like Glassdoor and Indeed provide employee reviews and ratings, which can offer insights into a company’s workplace culture and management effectiveness. High employee satisfaction often correlates with strong organizational performance, while negative trends in ratings might signal deeper operational issues.

3. News Sentiment

Tracking how a company is portrayed in the media can be crucial. Sentiment analysis tools can quantify whether the news is generally positive, neutral, or negative. A surge in positive coverage might indicate strong performance or an innovative product launch, while negative sentiment could foreshadow challenges.

4. Web Traffic

Monitoring website traffic can provide clues about customer interest and engagement. For e-commerce companies, spikes in traffic often precede revenue growth. Similarly, declining web traffic may hint at weakening demand or competitive pressures.

5. Social Media Followers

A growing social media following can reflect increasing brand loyalty and customer engagement. Companies with active and engaged audiences are often better positioned to leverage these communities for sales, feedback, and brand advocacy.

How To Use Alternative Data?

Alternative data provides predictive power that traditional metrics often lack. For instance, while financial statements are backward-looking, alternative data can offer real-time insights. By integrating these insights into their stock research, investors can:

• Identify Trends Early: Spotting patterns in hiring, web traffic, or social sentiment can help investors anticipate future performance.
• Validate Investment Hypotheses: Comparing alternative data with traditional metrics can strengthen an investor’s confidence in their decisions.
• Mitigate Risks: Negative trends in employee ratings or web traffic can serve as early warning signs, allowing investors to adjust their strategies accordingly.

Tools for Accessing Alternative Data

Investors can access alternative data through various platforms that have specialized on analyzing a treasure trove of data on public companies. Platforms like TrendEdge.ai, Thinknum, Quandl, and TrendEdge.ai offer robust datasets tailored for stock research:

• TrendEdge.ai: A cutting-edge platform that combines alternative data insights with AI-powered analysis, to provide its members with an edge in the stock market. Its ability to integrate alternative data with technical and financial analysis sets it apart as a valuable tool for predicting stock movements.
• Thinknum: This platform specializes in tracking alternative data like company hiring trends, social media activity, and web traffic. Thinknum’s tools allow investors to visualize and compare data across industries, making it easier to spot outliers or emerging trends.
• Quandl: Known for its extensive library of datasets, Quandl provides access to everything from real estate data to federal reserve economic data. Its focus on quality and variety makes it a go-to resource for investors seeking diverse data points.
• AltIndex: Designed to empower investors with actionable insights, AltIndex aggregates job postings, employee ratings, web traffic, and social media trends into interesting buy, hold, or sell signals. Its user-friendly interface, stock alerts and comprehensive datasets make it an excellent choice for retail and professional investors alike.

These tools enable users to analyze trends in job postings, sentiment, and other metrics, providing a competitive advantage in the stock market.

The Alternative Data Take-Away

Incorporating alternative data into stock research isn’t just a trend – it’s becoming a necessity in finding an edge in today’s fast-paced markets. Especially with the rise of new AI technologies capable of analyzing vast datasets, alternative data becomes even more valuable and insightful for stock research. 

By leveraging alternative data insights such as job postings, employee ratings, news sentiment, web traffic, and social media metrics, investors can uncover hidden opportunities, predict company performance, and make more informed decisions. The future of investing lies in the ability to see beyond traditional metrics, and alternative data is the key to unlocking that potential.