The Valuation Handbook: Valuation Techniques from Today's Top Practitioners

CHAPTER 21

Optimizing the Value of Investor Relations

 

William F. Mahoney

Editor, Valuation Issues

 

 

The primary purpose of investor relations (IR) is to optimize the understanding of the company by the investment community.

Given the popularity of multifactor models among professional investors, we can think of a good investor relations program as being one of those factors. In this way, an effective IR function contributes to the value of a company.

In this case, value doesn’t mean that IR adds to revenues or cash flow or margins or other operating drivers. It means that the IR help is being provided by enabling investors to price the stock at its fair value.

That contribution, of course, isn’t limited to users of multifactor models. There is a productive role for IR to play for every investor using an active modeling approach, whether it emphasizes earnings or cash, and whether it is built on multiple factors or other approaches. Even indexers and other users of quantitative methods benefit from inputting the best information possible into their models. A really good IR program delivers the best information.

We believe that corporate managements and professional investors have served to limit the role and value of IR. Investor relations people as well can do a better job of educating these two primary audiences on the real value of the function. Stock analysts and fund/portfolio managers still can be heard calling IR “PR” (public relations), and company executives mainly think ...