New research finds a powerful connection between brand and share price

New research released today 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 https://interbrand.com/thinking/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:  https://interbrand.com/thinking/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:  https://interbrand.com/thinking/how-brand-impacts-share-price/