According to a new study titled ‘How Brand Impacts Share Price‘ by brand consultancy Interbrand, B2B research company NewtonX, and strategic communications company Brodeur Partners, brand significantly influences a company’s value, yet many investors may not fully grasp its importance.
A report discovered that most investor relations professionals, analysts, and journalists believe that a brand has a significant effect on how much a company is worth. They ranked brand importance second, right after financial forecasts, in influencing a company’s value.
Even though it’s crucial, understanding the brand strategy and positioning of target or portfolio companies appears to be challenging for most respondents. Only a small percentage, 10 percent for journalists and analysts, claim to have a “deep understanding” of these brand issues. For investor relations professionals, this number drops even lower to 3 percent.
This new finding began with a simple observation: business brand growth and earnings potential aren’t always reflected in a company’s public share price.
‘‘A disconnect exists between the companies’ performance and the investment community’s analysis of their brands. However, we haven’t just identified the problem. Through analysis of over 500 companies’ P/E ratio over a five-year average and primary research within the investment community, we’ve identified a powerful driver that can potentially shift the balance, changing investor understanding, and thereby bringing earned value back to a company’s share price. Best of all, it’s an asset that companies already have the power to leverage or strengthen: their brand’’ Interbrand said in a statement.
The connection between brand and a company’s Price to Earnings ratio is seen as significant. 54 percent percent think brand has a decent impact on the PE Ratio, while 22 percent believe it has a big impact.
Yet, over a third (35 percent) of journalists and analysts indicate that they are occasionally briefed by the companies they assess. 28 percent increase that figure to “often,” and 11 percent claim they are briefed “almost always” or “always.” Only 7 percent state they are never briefed.
According to Interbrand, clarifying a winning brand strategy to investors can shift the balance on expectation of future brand performance, boosting share price. Perceived brand value can be improved.
The report proposes several important actions to ensure that a brand’s position is accurately portrayed in the investment community, aiming to close any gap in valuation.
One suggestion is to create a brand valuation model, demonstrating how the strength of a brand, its significance within the company, and the company’s financial performance collaborate to generate returns for shareholders.
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