Step Away From the Ticker Tape—Avoiding Stock Price Overload
Smaller-cap companies, like many of those in the health services, life sciences and medical technology sectors, experience more volatile stock price action than some of their mid- and large- cap peers. These small companies tend to lack the liquidity of larger firms and are therefore more vulnerable to news events (and often, big price movements will occur for no reason at all). For the executives and investor relations professionals of these companies, such price movements can be gut-wrenching.
In their quest for a solution to stock price volatility, some management teams monitor stock price movements on a daily basis and try to find explanations for this movement. This short-term focus is often non-productive and can even be distracting. It’s better for executives to concentrate on building long-term, sustainable shareholder value by providing the Street with identifiable milestones and successfully achieving those milestones.
There are times, however, when short-term stock price concern is merited. For example, a consistent price movement up or down for multiple days on higher-than-normal volume, could indicate a problem. You need to determine if the price change is a sustained trend and is based on the existence (or rumor) of material news that could affect the company. Often times, though, the movement corrects before anything can be determined about the underlying causes. And keep in mind, as well, one buyer can move prices dramatically in the smaller cap world.
Most investment relations professionals, as well as corporate executives, have encountered companies and individuals who attempt to gather intelligence on who is buying and selling your company’s stock. However, the strategic value of this information is marginal at best.
So instead of focusing on the daily gyrations of the market, we recommend a different focus – on your investors – by following these steps:
- Lay out an IR strategy at the beginning of the year and stick to it.
- Set reasonable, achievable milestones.
- Maintain a consistent story and be visible to Wall Street.
- Execute on the business plan.
The result? At end of the year (if not the day), your company’s stock price will reflect the value of the business.
Would you like more information on how to focus on your long-term investor relations strategy rather than agonizing over your company’s daily stock gyrations? If so, please sign up for our newsletter, follow us on Twitter or contact us directly with your questions.
John Woolford is a Managing Director on Westwicke's life sciences team. He has extensive experience in investor relations, as well as IPOs, capital raises, M&A, and other business development activities. He has a BS in microbiology from the University of Maryland at College Park and an MBA from the R.H. Smith School of Business.
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