DEFINITION of 'Channel Check'

Channel check is a method of independent stock analysis whereby company information is supplied by examining the company's distribution channels. Clients of the subject company are interviewed to see whether their use/purchases of the subject company's product or service has changed, increased or decreased. The distribution channel companies are also interviewed as to their perspective on how competitive the subject company's product is in the current environment and how their pricing compares. This information is then used to formulate an estimate for the subject company's sales revenue for the coming year.

BREAKING DOWN 'Channel Check'

Channel checks are most often conversations or personal research done by researchers or third-party information providers with direct managers of businesses within a sector or industry that utilizes the subject company's product. Many times, when stock analysts provide ratings for specific companies, the company being analyzed supplies the information that is used. When doing a channel check, the analyst is using information that is not supplied by the company because he or she is independently investigating the company's financial health. Channel checks have come under scrutiny in recent years as regulators question whether such research should be considered inside information, or just personal research.

Example of a Channel Check

For example, ABC Widgets, Inc. is the subject company for Bert, a research analyst. Bert wants to check on ABC Widgets' clients/distribution channels to see how many widgets they're planning on ordering from ABC Widgets in the next year in order to project ABC Widgets' revenue. Bert calls Jack, a manager at ABC Widgets' largest client and asks him about their plans for continuing to do business with ABC Widgets and gets his opinion on how competitively ABC Widgets is positioned among widget suppliers. Bert is doing a channel check.

RELATED TERMS
  1. Segment

    A segment is a component of a business that has its own revenues ...
  2. Channel

    A channel may refer to a distribution system for businesses or ...
  3. Theory Of Price

    The theory of price is an economic theory whereby the price for ...
  4. Underlying Cost

    An underlying cost is a cost that is associated with normal, ...
  5. Last In, First Out - LIFO

    Last in, first out (LIFO) is a method used to account for inventory ...
  6. Law Of Diminishing Marginal Productivity

    The law of diminishing marginal productivity is an economic principle ...
Related Articles
  1. Trading

    Channeling: Charting a Path to Success

    Learn how to trade channels, a chart pattern that tells you where to enter, where to exit and even how long the trade may take.
  2. Trading

    Buy These Stocks on The Pullback (LEN, FNF)

    These four stocks are in upward sloping trend channels and have recently pulled back toward the bottom of the channel, providing a buying opportunity.
  3. Trading

    Enterprise Products Bouncing Up and Down (EPD)

    EPD is making some very predictable moves momentum traders can profit from.
  4. Trading

    Trading Opportunity in These Trend Channel Stocks

    These stocks are all moving within trend channels. With prices of these stocks trading near the extremes of those channels, there's an excellent trading opportunity.
  5. Investing

    Buying Stocks When the Price Goes Down: Big Mistake?

    Averaging down is a trumpeted strategy that has merit, but can amount to throwing money away when used carelessly.
  6. Trading

    Commodity Stocks Still Presenting Buying Signals

    A handful of commodity stocks continue to offer short-term trading opportunities as they move higher within a trend channel.
  7. Trading

    Commodity Stocks With Buy Signals

    These commodity-related stocks are in uptrends and currently near support, providing a buying opportunity.
  8. Trading

    3 Stocks Channeling Higher and In the Buy Zone

    Trending higher overall, and trading near support following a pullback, these stocks are in the buy zone.
  9. Financial Advisor

    How to Start Your Digital Marketing the Right Way

    Digital marketing is a must-do for all advisors reaching out to younger generations. Here are six steps to kicking off your campaign.
  10. Trading

    Microsoft Stock Breaks Out Into Triple Digits

    Microsoft shares traded above $100 for the first time last week and could add to gains in the coming months.
RELATED FAQS
  1. What's the difference between production cost and manufacturing cost?

    Learn more about fixed and variable expenses incurred by businesses. Find out how production and manufacturing costs impact ... Read Answer >>
  2. What is the difference between a direct and an indirect distribution channel?

    Learn about the primary differences between direct and indirect distribution channels, and under what circumstances a company ... Read Answer >>
  3. What is the difference between marginal benefit and marginal cost?

    Understand the difference between marginal benefit and marginal cost. Learn how and why both marginal cost and marginal benefit ... Read Answer >>
  4. Why is trading volume important to investors?

    Learn about trading volume, its importance and how investors analyze volume to confirm a trend or reversal in a security. Read Answer >>
  5. What are direct costs of sales?

    Learn about direct costs of sales and cost of goods sold (COGs), what direct costs of sales measures and how to calculate ... Read Answer >>
  6. Why Are Dividend-Paying Stocks Often Less Volatile?

    Understand why once a company decides to starts paying regular cash dividends, its stock usually trades with a little less ... Read Answer >>
Trading Center