Further, only 26% of the sample feels their stock is appropriately valued, while 1% thinks it overvalued and 10% are unsure, or decline to comment.
Low prices are attributed to what respondents perceive as overly pessimistic expectations of revenue and earnings growth by analysts, coupled with insufficient recognition given to important non-financial indicators of future financial growth.
Management Barometer Survey
The survey, Management Barometer, a quarterly survey of 101 CFOs and managing directors in large, multinational businesses, found that the positive outlook prevalent in the sample was based on expectations for:
- improved revenues, earnings, and cash flow
- plans for acquisitions
- new alliances
- more-aggressive external disclosure.
Overall, those expecting an increase in their company’s share price expect it to rise by an average of 28% over the next year. Among these:
- 93% anticipate a double-digit increase
- 8% expect the price to remain constant
- 1% anticipates a decrease.
Technology industry executives are anticipating greater increases than those in other sectors:
- 72% expect their stock price to rise compared to 70% from other industry sectors
- they expect an average increase of 33% over the next year
- they expect an average increase in price of 15%.
The survey also revealed that many respondents are considering strategies to increase their company’s share prices:
- almost 60% say they will spend more time with analysts
- a slightly smaller number will spend more time with major investors
- half the respondents will try to boost the price with new acquisitions
- 48% will form new strategic alliances.
Interestingly, those expecting their share price to rise have experienced revenue increases of 205% over the past five years, double the rate of those not expecting a price increase.
In addition, those expecting their stock prices to rise, also expect that:
- the growth of their business will exceed that of the economy
- revenue will grow by 6.1% in 2001, versus just 3.1% for all others surveyed
- revenue growth of 7.8% over the next 12 months, versus 5.1% for the other respondents.
Profile of the Undervalued
Though distributed across all industries, the businesses deemed undervalued have several things in common:
- they are 38% larger in terms of average number of employees
- they are 25% larger in terms of revenues
- their revenue growth forecast is 18% higher than other companies’ forecasts for 2001and 13% higher than average for 2002.