Interbrand in partnership with NewtonX and Brodeur Partners has come up with a new research report titled ‘How Brand Impacts Share Price’ that throws light on the fact that there’s a powerful connection between ‘brand’ and share price.
The report also explores the valuation of S&P 500 companies, investor community perceptions of ‘brand’, and shared insights on how to obtain a more accurate share price valuation.
As part of the report, a two-part qualitative-to-quantitative study was conducted involving 241 ‘hard-to-reach decision-makers’ among financial analysts, financial journalists, and investor relations professionals to understand the investment community’s perspective on brand strategy, company valuation, and how they stay informed.
Additionally, a separate analysis spanning five years included S&P 500 U.S. publicly traded companies as well as Interbrand’s 100 Best Global Brands, which informed the categorization of 532 companies across 51 market sectors into distinct groups based on their price-to-earnings (P/E) ratio and share price volatility.
The research report titled, How Brand Impacts Share Price, also included a survey which explored investor community perceptions and opinions of brand in calculating P/E ratios and share price.
“Surveys of the investment relations community, financial analysts and journalists showed they are aware of the significant impact brand has on valuation, with 76% stating that brand strategy has moderate or large impact on changes to P/E ratio. Further, brand strategy ranks as the second most important consideration (19.8%) for investment analysts and journalists when evaluating a company’s prospects (second to financial forecasting at 29.1%). Brand was found to be more impactful than competitive threats (18.6%), macroeconomic factors (17.9%), and senior management reputation (14.7%),” the report mentioned.
Furthermore, it also highlighted that while the investment community currently lacks the deep understanding of brand strategy which is needed to create an accurate valuation, they are seeking to learn more.
“While 39% of analysts and journalists said they often or almost always receive a briefing from the company they’re evaluating, 64% said they would like to be briefed at that frequency,” it added.
On the other hand, the report with its data analysis covering 51 market sectors providing valuable insights into brand valuation by vertical markets, including technology, medical device and finance sectors and indicative of wider trends among industries, also pointed out that findings show that 67% of companies in the dataset are not consistent overperformers – hence implying that their stock is undervalued, or the share price is more volatile than its underlying performance.
Here are the Key Takeaways from the report –
- The study found 67% of analyzed S&P 500 companies may be inaccurately valued, illustrating that share price often fails to reflect a company’s true value.
- 76% of investment analysts and journalists say that brand strategy has a moderate to large impact on changes to price-to-earnings (P/E) ratios.
- While the investment community values brand, 90% of investment analysts say they do not have a deep understanding of the positioning and strategy of the companies in their portfolio. This knowledge gap underscores a critical need for enhanced brand communications between corporations and the analyst community.
- Despite companies naturally wanting to increase their share price, few companies have optimized their brand communications to get a more accurate P/E evaluation.
Commenting on the launch of the new report, Greg Silverman, Global Director- Brand Economics, Interbrand, said, “This study is a game changer in redefining the role and value of brand, elevating it from traditional marketing to an important lever used by CEOs and CFOs to help increase share price. Given our research identified many companies as underperforming, there is a strategic opportunity for companies to reevaluate their approach to brand strategy and investor communications, and gain a critical advantage in their valuation.”
To this, Andrew Miller, Chief Growth Officer, Interbrand, also added, “In the dynamic landscape of corporate valuation, this report illuminates a powerful truth: the understood value of a brand is a vital contributor to a company’s share price. With these revelations, C Suite executives are empowered to strengthen their corporate narratives with the goal of more effectively communicating with the investment community.”
Click here to view the full report.
