There are many different types of investors with many different objectives. Some want growth and look for stocks with high returns and earnings momentum. Others seek value and purchase stocks they feel are undervalued and underfollowed by Wall Street. Another type of investor wants income, like stocks with a dividend.
Regardless of the differences, most investors take the information they are given and run it through quantitative models. Then they compare the results to other companies in the same industry and make an investment decision based on these relative quantitative indicators. This is basic information easily culled from a company’s financials, which must be disclosed on its income statements, cash flow statements, and balance sheets. Anyone can get these and do their modeling.
Then there are the intangibles, which is where IR needs to be at the top of its game. The intangibles are the nuances of value, the managing of expectations and perception, and the ability to define, deliver, and create a dialogue about a company’s financial performance and position in its industry. In fact, intangibles are an important component of maximizing value. Anywhere from 20 to 40 percent of a company’s valuation is linked directly to these items. That’s a big piece of the valuation pie, and the job of IR is to help management maximize it and investors understand it. (See above picture)
Regardless of whether a company is traded publicly, or its stock is held by private investors unable to sell the shares on public exchanges, having a voice in the capital markets is important. Many private companies wait until they are considering going public—that is, offering their shares to the public via an initial public offering—before they incorporate IR into their strategy. This is a missed opportunity for private companies to build relationships with Wall Street and, more importantly, to create a distinct advantage and gain a competitive edge in their industries.
The opinions of capital markets professionals, particularly analysts but sometimes portfolio managers, are often quoted by the media, and the media is an integral force in shaping public perception and forming a company’s reputation. Therefore, in order for private companies to have equal representation in the public eye, they have to be at least a twinkle in the eye of the capital markets. They have to get their message and mission across so that it is well-understood and incorporated into the points of view of The Street. An IR strategy is of great value to the private company in putting the message out there.
A private company has the best of both worlds. Privates can talk to the world, make predictions about themselves and the industry, and potentially affect their competition’s perception and cost of capital, yet never be held to the regulatory accountability that comes with life as a public company.