Insights from investment community challenge conventional notions of company valuation

New research released by Interbrand, in partnership with NewtonX and Brodeur Partners, unveils a powerful connection between brand and share price. 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.

Key Takeaways

• 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.

Research Approach

The report, How Brand Impacts Share Price, includes a two-part qualitative-to-quantitative study of 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. 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.

“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,” said Greg Silverman, Global Director of Brand Economics at Interbrand.

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% 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%).

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.

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% 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. With these revelations, C-Suite executives are empowered to strengthen their corporate narratives with the goal of more effectively communicating with the investment community,” said Andrew Miller, Chief Growth Officer, Interbrand.

The full report is available for free download: How Brand Impacts Share Price.

Report Methodology

The report, How Brand Impacts Share Price, 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.

The full methodology is available in the report: How Brand Impacts Share Price.

About NewtonX

NewtonX is the world’s leading B2B research company enabling enterprises to make more confident decisions. They deliver primary research at scale by fielding large-scale quantitative surveys, facilitating qualitative interviews, engaging in long-term consultations and creating customized research plans. Visit newtonx.com to learn more.

About Brodeur Partners

Brodeur Partners is an integrated communications agency that helps organizations become and remain relevant in a complicated world. It is differentiated by its focus on relevance, behavioral change and ability to bring a discipline-agnostic approach to its business-to-business, non-profit, consumer and higher education clients. Visit brodeur.com to learn more.

Interbrand

Interbrand has been a world leading brand consultancy for over 5 decades – having pioneered iconic work and forged many of the brand building tools that are commonplace across the industry today.

In collaboration with the world’s leading brands, Interbrand’s global team of thinkers and makers are pioneering the future of brand building. By turning customers into active participants, Interbrand helps clients strengthen their brands on an ongoing basis – its approach gives them the confidence to make Iconic Moves that spark desire and create utility, driving extraordinary results.

Interbrand is a part of Omnicom’s (NYSE:OMC) Brand Consulting Group.