New research released by Interbrand in partnership with NewtonX and Brodeur Partners, has unveiled a connection between brand and share price. As per the ‘How Brand Impacts Share Price’ report, 67% of companies in the S&P 500 may be inaccurately valued due to the misunderstanding of one key business asset.
The report further revealed that 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 brands, 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.
Talking about the report, Greg Silverman, global director of 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.”
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 categorisation of 532 companies across 51 market sectors into distinct groups based on their price-to-earnings (P/E) ratio and share price volatility.
Despite companies naturally wanting to increase their share price, few companies have optimised their brand communications to get a more accurate P/E evaluation.
The survey further explored investor community perceptions and opinions of brands in calculating P/E ratios and share price. 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%).
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% 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.
Moreover, 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.