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Should a volatile stock market influence how CFOs allocate their time?

Phyllis Proffer's picture
Posted by Phyllis Proffer (Owner, Management Consul), Jun 15, 2010, 10:01 AM (view user's blog)

CFOs can have more influence on the liquidity of their common stock than they may realize.

I met with a prospective client last week, a CFO with nearly $1 billion in market cap, who questioned why he should spend time with the investment community when it appears to have little to no influence on the stock price. Similar to other small cap CFOs, he is understaffed and overworked. His question is a reasonable challenge. 
 
Stocks will trade with their peer group, industry and the overall market. There will be periods when external factors appear to drive the trading activity for your company’s stock more than its financial performance and future outlook. Although frustrating, it is unavoidable. However, CFOs can have more influence than they may realize.
 
Resist the urge to retreat when the stock market is declining and accelerate activities when it is up. Accelerating activities in a down market to prop up the stock price and taking it easy in an up market isn’t a good idea either. 
 
Maintaining a presence with the investment community on a planned and consistent basis is a great strategy to help your company achieve the best possible stock valuation relative to your peer group over the long term . . . despite short-term fluctuations in the overall market.  
 
Increasing the liquidity for your common stock is at the top of the list of benefits for this strategy. Liquidity makes your stock even more appealing to a greater number of institutional investors. 
 
Portfolio managers are continuously looking for ways to drive the performance of their portfolios and achieve a competitive return for their customers. This is particularly true in a volatile market.  
 
  • Your stock could be the new idea a portfolio manager is seeking to replace a depressed or underperforming stock in the portfolio. 
  • Or maybe your stock is the one being replaced. 
  • Or, your stock has appreciated in value and one of your holders must sell to cover the losses associated with another stock in the portfolio.  
 You want investors waiting in the wings to purchase your shares at a price they have pre-determined as a buying opportunity. Staying on their radar screen will help you achieve that goal. 
 
Accessibility and consistency are valuable to the investment community. It is surprising how many management teams either do not recognize this or choose not to capitalize on it. Companies are rewarded for being available during the bad times as well as the good times.
 
Management accessibility without targets or benchmarks can lead to spending too much time with the wrong investor. A thoughtful targeting program will result in more meetings with more investors who have a higher probability of purchasing shares at multiple stock price levels as they build a position in your stock.  
 
The markets your company serves are not stagnant and neither is the stock market. Maintaining a presence with the investment community on a planned and consistent basis promotes a long-term view of your company while attracting more buyers than sellers.
  • Operational Efficiencies
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