The first quarter of 2019 proved to be a challenging period for many Growth stocks. End market demand is skittish, debt and equity markets are not as welcoming as they were in early 2018 and Washington is in a state of disarray. With so much up in the air—the outcomes of trade talks, the possibility of yet another government shutdown, and growing weakness in the Asian consumer environment—investors are taking a closer look at company specifics and market risks. In response, many company leaders are rethinking their investor relations strategies for the coming year.
First and foremost, resist the temptation to pull back.
In an environment like this, it’s easy to see why the gut reaction might be to tone down growth stories and get a lot more conservative about expectations, especially if performance is currently weaker. Some leaders may even consider forgoing talks with new investors all together.
But this can send the wrong message, especially to young or inexperienced investors who haven’t lived through a bear market before. These investors may be seeing danger where there isn’t any, or assuming that things are far riskier than they actually are. If you go quiet, this will only add fuel to the fire, exacerbating fears that companies won’t be able to hit their numbers and will surely underdeliver in the months and year ahead.
What’s more, there are many investors who fall into the generalist camp and have longer-term horizons. They are willing to stick it out with you during tough times, as long as you keep them engaged. There is also the value-oriented investors to consider. They have been waiting a long time for their chance to invest in great companies that may be trading down at the moment. For this set, a bear market may be viewed as the ideal buying opportunity, and they see the glass half full, rather than half empty.
If you stop talking or pull back too much, you miss the opportunity to appeal to all of these valuable investor groups.
Put safety first.
Instead of holding back, which may lead investors to believe that you’re less than comfortable with your investor narrative, consider shifting your messaging and leading with a conversation that emphasizes the stability of your stock and the inherent safety of your business model. If investors are, indeed, looking at everything through a lens of risk (as opposed to growth), then that’s the right place to start. This type of strategy can help assuage fears and create a sense of confidence right out of the gate.
Remember that even in a bear market, investors don’t stop investing all together. But they do look for the safer bets. Try to mix in some messaging around the following themes, if it makes sense for your business:
- Speak to your low debt profile. The less debt you have currently, the better position you’ll be in to finance new acquisitions or take advantage of other opportunities on the horizon.
- Talk about the lower operational risks of your business and, specifically, any operating risks that can be easily controlled. What specific levers can you pull to reduce your operational expenses in a tough market?
- Speak to any the benefits of lean manufacturing or continuous improvement efforts that will help you protect your margins and ride out tough times on the horizon. Discuss how these initiatives ensure the lowest possible manufacturing costs for your business and grant you more control over your product costs. If you’ve upped your lean or CI efforts over the last couple of years, sharing that story can help position your business as prepared and proactive, and it can paint a picture of a responsible organization that’s always finding ways to improve stakeholder returns.
- Highlight the flexibility of your business. To what extent can your company be nimble and make necessary changes with the workforce, suppliers, or payment terms to weather a down market, cut costs, or preserve cash if needed? Do you have the ability to put acquisitions on hold? Maybe you can use downtime for production maintenance or other internal housekeeping tasks.
- If you have diversity in your manufacturing operations, make this part of your story. If global conditions change, do you have the ability to easily shift the location of manufacturing to take advantage of better conditions in other parts of the world?
- Discuss industry trends and emphasize long-term relationships you have with your customers. In a weaker economy, companies looking to cut expenses are more likely to outsource a wide range of services. This could ultimately benefit your organization and lead to even greater demand.
- Give qualitative guidance on what your customers are saying or what you are hearing from industry leaders or associations. This recent post about giving guidance into today’s market discusses how intuitional investors are very interested in knowing more about customers’ current sentiment in particular.
Don’t forget to close with a great growth story.
While it may be more important right now to emphasize safety and stability, remember that growth is still the trigger that ultimately motivates most investors. Once you’ve set the stage by discussing your efforts to reduce risk, be sure to follow up with the details of your growth path. Keep in mind that even in a bear market, the fundamentals of your investment thesis may still hold true. Don’t be afraid to talk about your realistic growth goals and share your positive value creation story with investors.
Always tell the best story you can.
At Clermont Partners, we specialize in helping companies refine and deliver investment narratives that drive valuation in all market conditions. If you’d like to discuss your strategic investor relations plan and how you can optimize your shareholder base and equity valuation, even in a tough market, please give us a call today.