Let’s say you were an analyst at a hedge fund approached to invest in Under Amour (UA) when they first went IPO in 2005. At the time, the company had been around for 9 years and was profitable. Its shoes and athletic wear was seeing fast-growing demand, and the valuation of the IPO shares was attractive. Everything looks good—so you should buy, and buy a lot, right?

Not quite yet.

Do you remember British Knights? The NYC shoe brand exploded in popularity in the 1980s, but its growth potential was limited and the owner eventually sold the brand in the late 19980s. This was a cautionary tale from the past—a brand that tried very hard to oust Nike (NKE) from its throne, and had failed miserably. Other sports brands had carved niches, like Adidas, but none had become the Pepsi to Nike’s Coke. This was the pitch underneath Under Armour’s growth story. And now your job, as an analyst, was to answer a simple question: will UA become a big and real competitor to NKE?

Yes, analysts really are expected to predict the future, even though everyone knows no one can. Yet analysts’ fortunes and careers are made or broken on their ability to do the impossible. So how do you do it?

Back to due diligence.

If we want to know the real potential for UA in the future, we first need to know who is buying the products, why they are buying them, and how that behavior might change in the future. To do that, we need to understand the sector that UA is working in.

The answers to our questions do not lie with management or in secret files in the company. Companies can have roadmaps for future products and market penetration strategies, but that doesn’t mean those roadmaps will work. Really, an analyst needs to go beyond the company and look at the company’s market and audience to see how those people see the company.

This is the second part of due diligence: channel checking.

What is channel checking? It is an obscure but important part of financial analysis where an analyst will go to the buyers and vendors of a product and ask questions. In the case of UA, channel checking could include doing surveys of UA apparel buyers and shoppers, asking them why they did or didn’t buy UA products and what they want out of UA products in the future. It could also include talking to resellers of UA products (i.e., talking to people at Foot Locker (FL) or similarly connected companies) and asking them which UA products are selling, why they are selling, and what products are failing and why.

You can then use that knowledge to see if UA sales are doing well—but you can also use that knowledge to see if UA’s future looks strong or not. You can compare what you’re hearing from the sales channel from buyers and resellers to create a mosaic image of what the marketplace really looks like, and then compare that to UA’s roadmap. Are their product developments and strategies really in-line with what the market wants? Or is UA trendy now but fundamentally misunderstands what the market wants?

In the case of UA, the market was increasingly interested in more technologically connected and sophisticated apparel. UA has, since its IPO, become more and more of a tech company. The stock has risen over threefold as a result. However, since 2015 the company has had problems due to some controversies and changes in market sentiment—these changes were perceptible by talking to the marketplace (i.e., doing due diligence through channel checking), and those analysts who heard these changes and identified them in 2015 avoided a 72% loss.

Of course, channel checking is imperfect. Selection bias is common, and talking to a statistically significant portion of buyers is often impractical if not impossible. More importantly, sometimes the market doesn’t know what it really wants. Channel checking Mac sales in 2006 would have done nothing to predict the transformative nature of Apple (AAPL) following its iPad and iPhone releases, in large part because most consumers didn’t even know they wanted a smartphone or tablet at the time. Steve Jobs was famous for saying that “customers don’t know what they want.” There is a limit to listening to them.

But ignoring them entirely is folly as well. Which is why channel checking is an important part of the research process, but its value is limited. Which is why it should be combined with internal due diligence and the third aspect of this important financial concept: accounting due diligence.