New research released by brand consultancy Interbrand, in partnership with B2B research firm NewtonX and integrated communications agency Brodeur Partners, explores the strong connection between share price and brand. The report, How Brand Impacts Share Price, explores the valuation of S&P 500 companies, investor community perceptions of brand, and how to obtain a more accurate share price valuation.
“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,” said Greg Silverman, global director of brand economics at Interbrand, in a news release. “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.”
Key takeaways:
- The study found 67 percent of analyzed S&P 500 companies may be inaccurately valued, illustrating that share price often fails to reflect a company’s true value.
- 76 percent 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 percent 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.
The investment community’s understanding of brand
The survey 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 percent 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 percent) for investment analysts and journalists when evaluating a company’s prospects (second to financial forecasting at 29.1 percent). Brand was found to be more impactful than competitive threats (18.6 percent), macroeconomic factors (17.9 percent), and senior management reputation (14.7 percent).
While the investment community currently lacks the deep understanding of brand strategy that is needed to create an accurate valuation, they are seeking to learn more. While 39 percent of analysts and journalists said they often or almost always receive a briefing from the company they’re evaluating, 64 percent said they would like to be briefed at that frequency.
Brand and valuation in context
The data analysis covered 51 market sectors, providing valuable insights into brand valuation by vertical markets, including technology, medical device and finance sectors, indicative of wider trends among industries. Findings show that 67 percent 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.
“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,” said Andrew Miller, chief growth officer at Interbrand, in the release. “With these revelations, C-Suite executives are empowered to strengthen their corporate narratives with the goal of more effectively communicating with the investment community.”
The report includes a two-part qualitative-to-quantitative study of 241 hard-to-reach decision-makers among financial analysts, financial journalists, and investor relations professionals. 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. This 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. P/E ratios were averaged to yield a range of -200, 200. The 51 sectors present in this study were set by Interbrand’s Best Global Brands 2023 sector allocations and Yahoo Finance sector definitions.
