I HAVE never fully understood why analysts and portfolio managers vote for the sites that win the best IR website category in IR Magazine’s US Awards.
I’m not suggesting there is anything wrong with IR Magazine’s process. They survey a large number of people and the results are what they are.
What has puzzled me for years is the criteria survey participants use when they point to particular websites. Their selections rarely make sense in light of all of the published research I’ve analyzed, and all of my experience talking to investors and analysts about IR websites.
How to win IR Mag’s IR website award
To rationalize this incongruity to myself and people who’ve asked me about it, I’ve developed a little theory to explain the choices investors have made over the years in this category of IR Magazine‘s awards.
Put yourself in the shoes of one of the survey participants. You get a call out of the blue and someone asks you which company has the best IR website. The major factors that will determine your answer probably are rather simple.
First, you have to have visited the company’s website in recent months. And second, there has to be something on the site that makes it memorable, so that it springs to mind when the question is posed by the survey company.
Looking back, recent past winners like General Motors (2007) and eBay (2006) fit the theory well. Both were in the news at the time IR Magazine did the survey, meaning that a broad cross-section of investors probably visited their sites.
PFCB doesn’t fit the mold
But this year, the win by PF Chang’s China Bistro (NASDAQ: PFCB) doesn’t fit the theory. Nothing really happened to put the company in the general spotlight. And it’s obvious to anyone visiting the company’s site that it’s low-rent as IR websites go. It’s actually on an old version of Thomson Financial’s platform and there are a number of glaring gaps.
Frankly, I doubt that very many analysts and portfolio managers in the survey actually visit PFCB’s IR website regularly because the only thing that would make it memorable is that it’s a mess. And I can’t see analysts and portfolio managers being part of the Vote for the Worst campaign.
However, it appears that it’s not PFCB’s website that investors like, but rather the depth and quality of the company’s disclosures. A source who should know something about these things wrote to me after the original post and offered a very reasonable explanation:
“I believe what analysts like is the ROIC information included in the ‘other’ financial reports section. Their press releases and 10-K’s have also historically been extremely detailed, providing line-item forecasts that you typically don’t see other companies doing. They also do an excellent job of disclosing performance results by year of opening. So bottom line, when analysts vote in this category, my guess is that they are most likely rating the quality of disclosure, not necessarily the ‘website’ per se.”
And that makes a whole lot of sense. They are highly regarded by investors, but for the transparency of their disclosures and not for their website.
Recognized despite lagging stock performance
Just as interesting to me is that in the six months prior and during the period when IR Magazine‘s survey was conducted, PFCB’s stock badly lagged the broader market.
In fact, two other companies nominated for the award — The Cheese Cake Factory (NASDAQ: CAKE) and Wyndham Worldwide (NYSE: WYN) — also suffered sharp drops in their stock prices, as you can see from the chart.
|The stock prices of PFCB and fellow nominees CAKE and WYN badly lagged the S&P500 in the period leading upto and during IR Magazine’s survey, which was conducted from November 28 to Jan 11.|
This blows up any theories that one might have about analysts and portfolio managers only voting for companies that have been doing well in the stock market.
At the end of the day, it does seem that analysts and investors value substance over form — in a down market.
Whether that holds true in more optimistic times, I’m not so sure.