:max_bytes(150000):strip_icc():format(jpeg)/GettyImages-109350219-bd5335e537dc48ceb018821a194119b1.jpg)
The Value of Live Meetings
Carefully going through a company’s financial statements is a good way to research a possible investment.
But meeting members of a company’s management team and/or participating in an investor conference call can give you added confidence in your investment decision-making process.
All told, such efforts may encourage you to invest in a company or to look elsewhere, and even to drop a stock from your portfolio.
The more useful information that you can gather, the better prepared you can be to make your investment decisions.
There are many benefits to having one-on-one conversations with those at the head of the corporations you invest in.
You can obtain information without a middle man or gatekeeper, gain a sense of management’s strength of convictions, and build rapport with managers that may result in added insight.
In the past, earnings conference calls were only made available to analysts and institutional investors. However, thanks to the accessibility of the internet, almost all public companies allow individual investors to listen in on the call.
Here are 10 questions that could get more from the CEO than the standard company line, if you get the chance to interact live with management.
They could help you determine whether or not you want to put your faith and money into a particular company.
Key Takeaways
- The answers to well-prepared questions for management can help you determine whether to invest in a particular company.
- Ask about sales over the next 12 to 24 months if you want to know about a company’s opportunities and risks over the short- and intermediate-term.
- Questions about the best use of cash may indicate whether a company is planning a merger or acquisition, if it will buy back common shares in the open market, or if it plans to save cash for future expansion.
- Questions about emerging competitors can inform investors about a company’s future challenges and strategies.
- To directly ask management questions, try to arrange a meeting with executives; or attend an annual general meeting, if non-shareholders are allowed, and listen to how they answer others.
10 Questions to Ask Management Before Investing
1. Where Do You See Sales Trending in the Next 12 to 24 Months?
This time frame will give you a good glimpse of the opportunities and the risks that could present themselves over both the short-term and the intermediate-term.
Because this is an open-ended question, and not a simple yes or no or one-word answer question, it allows the manager to give a broad response. Perhaps they will touch on a variety of issues that could prove valuable to the your decision-making.
2. What Are the Risks of Sourcing Raw Materials or Holding the Line on Costs of Services?
This question allows the manager to potentially touch on a variety of factors that could have an adverse impact on raw material or labor costs related to sourcing.
The manager’s response may give you some valuable insight into the future direction of gross margins, which in turn will give some insight into future potential earnings.
Savvy investors will compare the answer to this question with the earnings projections that the sell-side is making.
3. What Is the Best Use of the Cash on the Company’s Balance Sheet?
The manager’s answer to this question may indicate whether the company is planning a merger or acquisition, if it will use its cash to buy back common shares in the open market, or if it feels it’s better off saving cash for future expansion.
This information is particularly valuable because it may alert the investor to potential catalysts that could drive the stock higher (or to potential risks that could depress it).
4. How Does the Company Plan to Raise Capital in Order to Fund Future Growth?
When asking about future growth, look for a response that could indicate that the company is taking steps to improve its place in the market. If the company isn’t growing and is losing cash, then you’ll know that its performance probably won’t be good.
Fast Fact
A company’s annual general meeting (AGM) offers shareholders the opportunity to hear directly from management and board members and to ask them questions. Depending on the company, non-shareholders may also have access to this meeting. But if they don’t, and if you’re interested in a company, investing in just one share should grant you entry to the meeting.
5. Who Are the Emerging Competitors in the Industry in Which You Operate?
Answers to this question could reveal who the company feels is its competition, and/or who it may be in the future.
They may also alert you to new products/services coming to the market, which could impact the company at some point down the road.
Consequently, management may also disclose plans on how it intends to deal with these emerging competitors.
6. What Part of the Business Is Giving You the Most Trouble Now?
The answer will identify potential weaknesses in the company’s organization and provide some insight into future earnings.
For example, say the manager indicates that Division XYZ was forced to pay more in the current quarter for its raw materials because of a supply problem. If you know that Division XYZ makes up 40% of the company’s total revenues, you could assume with reasonable confidence that there may be a near-term earnings shortfall.
Keep in mind that identifying problem areas is one thing. But it is far more important to hear what the company plans to do to resolve the problem area(s) in both the short and long term.
7. How Close Is Wall Street to Estimating Your Company’s Earnings Results?
With this question, you’re asking if the company will meet consensus estimates. Think about it. If the manager says that Wall Street analysts typically underestimate earnings, the implication is that they’ll keep on doing that and there could be some upside to future earnings.
Conversely, if the manager comments that analysts are sometimes a little too optimistic, the implication is that there could be an earnings shortfall at some point in the future.
8. What Part of the Business That’s Ignored Has More Upside Potential Than Wall Street Believes?
This question may lead the manager to reveal more about the company’s positive points. It may inspire a long answer about important aspects that aren’t being represented in the media.
The manager’s answer could also reveal the source of potential upside earnings surprises, which is important because it may allow you to buy the stock before the impact (of the earnings) is actually reflected in the share price.
9. Do You Have Any Plans to Advance or Promote the Stock?
Knowing if and when management plans to promote its stock to individual and/or institutional investors is valuable information.
That’s because the smart investor who likes the company’s fundamentals can buy the stock ahead of what could be a large amount of buying pressure.
Individuals looking to time an entry or an exit point in the stock may also find this particular question to be valuable.
10. What Catalysts Will Affect the Stock Going Forward?
This is an open-ended question, so the manager may give you a wealth of useful information.
In some cases, they might highlight the potential for new analyst coverage, the possibility that the company may have a stronger year than expected, or plans to promote the stock.
Conversely, the manager might yield information about negative catalysts that could adversely impact the share price.
Can I Ask Company Executives Questions Directly?
Normally, that can be difficult. But, depending on the company, you could try to set up a meeting or phone call where topics would be discussed and questions asked. You might also be able to submit questions for an upcoming conference call.
Are Answers to My Questions About a Company Readily Available?
Usually they are. You may need to dig through financial statements and potentially other sources such as articles and interviews in news publications to find the information you seek. In addition, you could try calling the investor relations department of your target company and request answers.
What’s the Point of In-Person Meetings if the Info Is Already Available?
It’s possible that engaging in a discussion with company executives in person can provide useful insight about a company you might not otherwise receive. You may get a feel for the vision, strength of mission, and confident outlook of those in charge. They may offer additional information you don’t expect. And in-person meetings may provide you with a connection that you won’t get just by reading through the financials.
The Bottom Line
One-on-one conversations with managers can be terrific opportunities to garner timely, valuable information about a company.
Remember, all of the information you receive from these managers is readily available elsewhere, but what you glean from hearing from them in person could impart more than any earnings report could.
So be proactive. Try calling the company managers to make an appointment to meet them. Attend annual general meetings. Participate in conference calls when possible. Above all, arrive prepared to ask plenty of solid questions.
