Article at a glance:

Don't expect too much of your share price

Many executives regard investor relations as a way to push share prices as high as possible and approach the task as a public-relations exercise. But the goal should really be to match the share price of a company with its intrinsic value. Excessively high share prices tend to inspire poor managerial decision making intended to prop them up, and their inevitable fall can damage employee morale. Excessively low share prices can leave a company vulnerable to takeover attempts. To avoid the drawbacks of such imbalances, executives must understand any gaps between the share price of a company and its intrinsic value, make its strategy consistent with its message to investors, explain its performance transparently, and identify its most important investors.

The take-away

A systematic approach to investor relations can better align the share price of a company with its intrinsic value and help executives communicate more effectively with investors.