Q- Does any evidence exist to support the hypothesis that a company’s stock price will increase after it hires an investor relations firm to promote the stock?
A- Just for the record, when you hear an IR consulting firm using terminology like ‘promote’, you should run the other way. You should also discard the notion that an investor relations firm’s performance should be measured by the direction of its clients’ stock price/valuation.
Now that I’ve got that off my chest, I can honestly say that I myself have never come across any pure quantitative data that supports this hypothesis. Needless to say, I do feel strongly that an investor relations firm can play an important role in reducing the gap between what a company’s management thinks its valuation should be and what Wall Street feels the company’s shares are worth. Sometimes management is right, and sometimes Wall Street is right. In many cases, however, it takes an independent third party to get honest feedback and dig down to the root of the problem.
I would also point out that companies tend to engage an IR firm when there is a major catalyst to the upside (or to the downside) on the horizon. It is this ‘we finally have something good to say’ attitude that triggers the decision to invest in outside consulting to help build more awareness of the company and its prospects within the investment community.
Q- What is the best way to find out whether an investor we’ve met with intends to buy into the stock? We’ve had lots of positive meetings over the last few months, but it’s hard to decipher whether these funds are really serious about investing and how much time I should spend following up.
A- I often find that simply asking the right questions is the easiest way to get the answers you are looking for. In this case, I would not recommend putting the investor on the spot directly after the meeting. Instead, inquire in a follow-up phone call with the investor a day or two later. Start off by asking how they feel the meeting went. Did they get everything they needed to make an investment decision? Are there any follow-up questions you could help them with? Do they feel the company is a good investment right now? If not, why not?
Although some investors may not be willing to disclose that they are buyers until after they have arrived at the position they want, many will in the hopes of making the company aware of the fact that they are no longer just interested but are actually shareholders now. I also find that the investor’s level of interest following the meeting speaks volumes.
Even if the institutions in question are not buyers, they may be buyers at a later point in time, so the meeting time should be considered well spent in the interests of driving greater investor awareness.
Hulus Alpay is senior vice president of New York-based IR and PR firm Makovsky & Company.
