Valuation, 7th Edition

34Investor Communications^*

The value of investor communications is a subject of considerable controversy. Some executives, practitioners, and academics argue that actively handling relations with investors is a waste of management time and has no effect on a company’s share price. Others have unrealistic expectations, assuming that you can talk up your company’s stock and, if your investor relations staff is really sharp, it can tell you why the share price went down by 1.2 percent yesterday.

We fall somewhere in between. It’s virtually impossible to interpret short-term price movements with any useful insights. And even if you could talk up your share price beyond its intrinsic value, you probably shouldn’t. Nevertheless, good investor communications can ensure that your share price doesn’t get out of line with its intrinsic value, can build a base of loyal investors, and can ensure that executives don’t make poor strategic decisions based on misunderstanding what investors are saying to them. Too often, however, executives don’t know how to interpret what they are hearing from investors, because they are listening to the wrong investors.

The point of good investor communications is to build relationships with the right kinds of investors and communicate with them at their level. It also entails being selective about which sell-side analysts to focus on, not being overly concerned with investors who have a short-term orientation, and not being overly occupied with media coverage ...