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.

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.

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.