Wall Street has a saying, “You can’t fight the tape”. What this means is that when the market moves in a given direction, in this case down, any prospect of your stock not getting caught in the downdraft is remote. The best you can hope for is that you suffer less than most. (Of course, there’s another saying that goes “The trend is your friend”, but that clearly isn’t the case these days). As we watch fear ripple through the market, I thought that it might be helpful if we paused and thought about what investor relations officers can do to bring some semblance of rationality to the valuation being assigned to their companies’ stock. The concerns of investors that need to be addressed revolve around short-term issues and long-term prospects.
On the short-term side of the equation, the biggest concern is always liquidity. How exposed is your company to the lack of liquidity in the markets? Obviously, this is a huge concern for financial companies and companies with large amounts of leverage, but there are many other companies out there that routinely rely on short-term borrowings to fund operations. With the credit markets locked up, how much cash does your company have to fund its operations? What are your alternative sources of credit? How is your cash conversion cycle being impacted? Are your creditors paying you on time? What sort of write-offs are you looking at from your receivables? How liquid are your inventories? Are you engaged in a stock repurchase program just when you should be conserving cash? These are questions that every investor will want your input on, because they will be thinking about these issues.
On a longer-term perspective, it is likely that we are headed into a recession and the natural questions that come up will revolve around this issue. How economically sensitive is your company’s business? What has been its performance in previous downturns? Will tighter lending standards impact your sales? Is your company tightening the credit it extends to its customers? What’s the longer term funding status look like for your company – are there large debt repayments coming due in the next few years? How are you positioned relative to your peers with respect to all of the above? Institutional investors continue to be measured relative to a benchmark, so to a certain degree, they may be more willing to hold your company’s stock if, from a relative viewpoint, either your sector or your company are better positioned to perform during tough economic times.
Now is the time for investor relations officers to communicate more rather than less. Professional investors are feeling quite a bit of pain these days as the markets gyrate wildly. They are much more likely to pull the trigger and sell your stock if you don’t have immediate, well thought out answers to their questions.