Stock Price as a Strategic Asset: What Smart Companies Do to Support It

Rightly or wrongly, the stock price is typically the first metric used by employees, partners, customers, competitors, and investors to quickly ascertain whether a company is doing well, or not. It is a real-time company scorecard that reflects the collective judgment of investors who scrutinize the fundamentals and react quickly to any perceived changes in intrinsic value. While private valuations don’t fluctuate as often, the company’s latest valuation round is the key indicator of their status versus peers.

Ironically, companies routinely misjudge and underinvest in supporting what is arguably one of their most critical assets: their share price.  Companies will invest aggressively in new product research, marketing, advertising and partner/supplier/customer engagement, but too often the focus on investors gets relatively short shrift, inadvertently undermining the company’s strategic optionality.

While financial performance and capital market conditions are the primary drivers of valuation, Wall Street perception plays a critical role and should be actively managed through a strategic and thoughtful approach to investor engagement.

Success Breeds Success

A strong valuation creates a halo effect across customers, suppliers, employees, partners and capital markets. Like a popular restaurant, customers are more eager to indulge. Employees, especially those with equity, feel fortunate, boosting retention and making it easier to recruit top talent. Capital markets open their coffers, providing companies with strategic optionality.  

Conversely, companies with weaker valuations face tougher scrutiny. Investors need more convincing on growth prospects and competitive strengths and increasingly offer their opinions of what needs to change, perhaps angling for management transitions, increased cost-cutting measures, asset sales, etc. as they ascertain trough/downside valuations. Accessing capital markets is more limited.

Unforced Errors: Underappreciating the Language of Wall Street

Management teams naturally prefer to highlight their company’s strengths, often overlooking how they are perceived externally. Executives often highlight “world-class” management teams, top-tier products, and dismiss competitive threats. They are often quick to embrace the latest Wall Street trends, like “AI”, regardless of whether these trends genuinely reflect their core capabilities and long-term strategy.

Investors are wired to be skeptics. It isn’t complicated math to know that not every company is taking share and investors are attuned to the fact that most companies tend to overhype their opportunities. Investors are looking for credible, balanced commentary and tangible evidence of competitive advantages.

This disconnect often leads to a communication gap. As a result, management teams can miss the mark when presenting recent results, major transactions, or significant transitions. They can be caught off guard by market reactions and unprepared for the probing questions that follow.

What If You Could Have an Investor Helping You from the Inside?

When a stock is performing well, many companies assume they have everything under control. However, no company is immune to challenges, setbacks are inevitable and even today’s strongest performers will eventually face periods of adversity. As Warren Buffett has said, “Only when the tide goes out do you discover who has been swimming naked.”

Companies should take a strategic, forward-looking approach to investor communications by clearly articulating management’s actions, proactively addressing underlying issues, and highlighting future opportunities. Investors understand that uncertainty is inherent and recognize the limits of management’s control. What they seek are strong management teams, with the right incentives, proven execution capabilities, and the ability to navigate challenging environments.

Having an internal advocate with investor experience enables management to anticipate potential challenges, understand investor perspectives, and prepare for tough questions before the market renders its verdict. An internal “investor” can assess the business model and strategy through a Wall Street lens, provide a reality check on investor sentiment, translate disparate investor feedback, and proactively address key issues. By preparing executive teams for investor interactions and identifying potential vulnerabilities, companies can stay ahead of any concerns that investors are quick to spot.

Through a program including IR function assessment, perception studies, investment thesis development and refined investor outreach, companies can improve their interaction with the street that should positively impact the stock’s trading multiple. The goal is to build credibility with investors, reduce stock price volatility and support stronger share performance. Given that your stock price is one of your most important business indicators, why wouldn’t you ensure this critical resource is on your team?