Third-party data providers: a market place solution, but…

At a time when fastidious data crunching remains the standard routine of financial experts, third-party vendors appeared with an appealing concept: to make companies' financial data available by aggregating large-scale datasets from various sources (official, company websites…). As a result, third-party data providers have enjoyed a growing popularity these last few years. Indeed, they provide a simple solution… or soit seems.

In reality, beneath this enticing premise lies a hard truth: data vendors are a costly solution which offers no guarantee of reliability.

In most cases, analysts only resort to third-party data for a quick early analysis. The reason is simple: since there is no way to ensure that the data provided is 100% reliable, these analyses cannot alone support an investment decision.

To make sure they're not mistaken, experts still need to double check the results to confirm and refine this first analysis… Which means that ultimately, they still carry out the pains taking, time-consuming and error-prone data crunching that they were looking to avoid in the first place.

Fortunately, both these steps could be avoided through one solution: raw data.

The best alternative to data provider bias

Raw fundamental data provides the analyst with a broader, more accurate and objective view of a company's financial performance. This is due to several factors.

First, sourcing from raw data is the only way to guarantee that it has not been altered or adjusted.

Various research on fundamental data sources has shown discrepancies between the data provided by vendors, especially for metrics that can be calculated through different methods – short-term versus long-term debt, long-term leases, cash flow statements…

This bias might affect ratios such as ReturnOn Equity (ROE). Since equity can be calculated through diverse methods, third-party data forces analysts to rely on the method chosen by the data provider. The same applies to Debt-to-Equity: the method used by the provider to value debt and equity can affect the accuracy of the ratio.

Real-time data (only comes in raw)

Cutting the middle-man also allows for a more timely delivery. Data providers typically need some time to recover the data sets and to format them according to their practices. Considering how quickly today's markets evolve, such a delay puts experts at risk of basing their financial decisions on obsolete data.

For instance, the Price-to-Earnings ratio (P/E), which compares a company's stock price to its earnings per share, is very time-sensitive. While this ratio is very important for financial analysis, it is only relevant if the data used is recent and accurate.

Raw data broadens the analysis' scope

Fundamental analysis heavily relies on comparisons. Analysts need to understand the bigger picture: ideally, they must be able to "zoom in" on precise company data, as well as "zoom out" to compare it with its closest competitors, its whole industry or even the market at large.

This means that, if their market coverage is incomplete, vendors' databases might support faulty analyses. As shown by this 2018 research, the error margin of analyses based on third-party data increases when considering full samples of companies. This error margin often results from "survivor bias", i.e. when the financial analysis only focuses on the available data, thus forgetting the less visible stocks, for which little to no data is available.

Similarly, vendors' data processing may come at the expense of granularity… and this lack of precise company data often impairs the overall assessment of a company's financial performance.

‍Lens by Corporatings: trustworthy by nature

For all these reasons, sourcing from raw data remains the only solution to spare analysts from tedious double checks, and give them more control and flexibility over the data they use.

Yet for several years, the lack of a public companies database has prevented European analysts from harnessing the true power of Open Data. The success of third-party data providers can, to some extent, beat tributed to this lack of "raw" alternative.

This is precisely why Lens was created: to eliminate the potential risks induced by vendors' errors, delays and biases. No middle-man, no interpretation: what sets Lens a part from the galaxy of data providers is the real-time access to raw data – not to mention a more competitive pricing since the information is sourced from public data.

No need to worry about accuracy or availability: the data is sourced straight from the companies' financial statements… finally providing analysts with the necessary leeway to save time on data crunching and choose the metrics they need.

Request a Lens demo and discover the possibilities of raw data fundamental analysis!