Price is what you pay, value is what you get
This pearl of wisdom from Warren Buffett, uttered in reference to the fact that share prices often don’t reflect the underlying value of a company.
However, for company boards, the concept should be front and centre in all strategic plans and decisions. It is no good running around the broking houses crying that you are undervalued compared to your peers. In reality, there are probably a few good reasons as to why your company is undervalued and they’re probably close to home.
It could be as simple as your product offering – whether it be a gold prospect in the middle of nowhere or a new app that will fix some dire first world problem – is actually not as exciting or does not have as much potential as you think it does.
However, supposing that the offering is actually pretty darn good, why else could your share price be in the doldrums and not performing like a trick pony at the circus? Let’s have a look at a few common causes.
Management – A biggie to start the list, but probably the most important. If the key people driving the company can’t sell the value proposition, you’re in big trouble. Having the smartest person in charge doesn’t help if investors can’t relate to them and understand what all the fuss is about.
Newsflow – Investors like to believe that companies are busy on the ground, discovering this, developing that etc. Companies that put out regular news are more likely to be seen as active than those that stick to regulatory announcements only.
Capital Structure – This is one with multiple dimensions based on different investors. More serious investors will look negatively towards capital structures with billions of shares on issue, with hundreds of millions of options and performance rights that could dilute their holdings. On the flipside, retail investors may not look that deeply at the structure and instead focus on a share price, with 1 cent being a lot cheaper than 20c (regardless of the underlying market capitalisation).
Messaging – Remember that the vast majority of investors are not experts in your field. Most aren’t geologists, app developers or biotech scientists. There is not much point pushing out an announcement full of technical jargon that no one understands – it will fall on deaf ears, which is not the reaction you are going for when trying to get your share price up.
Corporate Appearance – It is not difficult nowadays to create an online presence that is high quality without breaking the bank. If your website is hard to navigate, your announcements look crowded and unprofessional or your corporate presentation looks like the same one you used to use on an overhead projector, it will be difficult to exude professionalism and modern thinking.
Many of these causes can be rectified through either good decision making by boards or by implementing a strategic communications strategy that complements management plans by simplifying the message and amplifying it to the right audiences.