Investor Day: A Guide for Retail Investors

An investor day is an important event for investors in publicly listed companies. The management and the investors interact with each other and discuss the company’s future.

The primary factor defining the relationship between a public company and its investors is “Trust.” This element of trust keeps the shareholders from pulling out their invested capital in the company; hence, a company must strive hard to build investor relations.

Investors Day is one event that helps public companies gain visibility and reliability amongst the shareholders. A successful investor day is one where investors get the opportunity to ask every question they have about the future of their investments. Not just institutional investors but even retail investors have become an integral part of the company’s investor relations strategies.

In this article, we will understand why investor days are so important and how you, as an investor, can make the most of them by asking relevant questions to the management.

What Is an Investor Day?

Investor Day, or an “analyst day,” is a public meeting where the CEO of the company and other members of management make presentations in front of a live audience, including media, analysts, the company’s shareholders, and prospective investors. The company organizes these events to update the investor about the company’s financial health, vision, and future.

Investor days aren’t the same as earnings calls as the talks don’t just revolve around the financials. The company can use this as an opportunity to talk about other aspects of its business, too.

Investors and analysts can ask questions while the global audience listens through live streaming. Investor days are high-stakes events that could also contain impactful news about the company.

One thousand nineteen face-to-face conferences and 128 virtual were held in the fourth quarter of 2021, according to Factset data.

Having a direct conversation with management heads has its advantages. For instance, you can access information untainted without a middle man and build a relationship with the company’s managers. Participating in an investor day can instill a sense of conviction in your investment decision. Alternatively, it may encourage you to discard the stock from your portfolio if the executive’s feedback does not convince you.

Historically, Investor Days have been optional for companies, but now it has become indispensable for investors. This is especially true for companies with an evolving story or a storied management team.

Nowadays, investors demand to reach out to the top leaders directly. They also want to see detailed, long-term strategic predictions instead of short-term estimates. They like detailed know-how about a company’s strategy to perform under pressure and handle the rising global competition. Post-pandemic, companies have increasingly turned to stream investor day events live.

Primarily, companies pursuing growth through mergers and acquisitions (M&A), planning new product launches, or raising investment in research and development (R&D) often hold these shareholder meetings. These events are scheduled; hence companies get ample time well-prepared for them. If the senior management fails to prepare adequately before the event, it reflects poorly on the interaction and could jeopardize its corporate image.

Investor days are critical for investor relations, and during the planning phase, the company must consider the concerns of its existing and potential investors. Data must back everything that the company delivers. Engaging in active dialogue with investors strengthens public relations strategy and keeps shareholder activism at bay.

Here’s a glimpse of Qualcomm’s Investor Day in 2021:

Benefits of Investor Day Looking at the broader story: Often, sell-side reports are vague and superficial. They focus on short-term goals instead of longer-term priorities, making it difficult for investors to understand the finer details. Investor Days are the perfect opportunity for shareholders to know about any shift in strategy and longer-term targets and get a sneak peek into broader management initiatives.

Foreseeing the significant trends: When investors read about the upcoming megatrends in the news, they are filled with doubts and questions. Investor Days also allow the shareholders to understand megatrends’ prospective impacts on the company’s growth potential. If they have any concerns about the hidden risks or threats, they can also question the company management right away.

Outlining performance through a cycle: Changing business environment, economic cycles, and volatile stock market conditions always keep investors on edge. Investor day is one such event where they have the opportunity to seek answers to their inhibitions and doubts straight from the company management. Updating happenings: Investor Day is the best way for the shareholders and analysts to stay updated about any happenings that aren’t listed on the company website or any form of statutory reporting.

Introducing management changes: Any reorganization in the company could have far-reaching repercussions on its performance. Shareholder meetings can be ideal to know about any such change ahead of time.

Updating about product innovation and technology: Innovating products and services and leveraging technological disruptions can pay long-term benefits in the form of growth. Investors look forward to the shareholder meetings to learn about a company’s investments in technology and product differentiation. The media is often yet to be briefed on this aspect, and companies use Investor Days to disclose future product launches.

Questions to Ask the Management

A successful investor day is where you engage in a meaningful dialogue with the management. As an investor, it is essential to ask the right questions so that company is held accountable and you can assess whether their long-term goals are aligned with yours. You can also compare the company’s answers with the analyst projections and evaluate the variations.

Here are some of the questions that you need to ask the management if you want to ensure that you have invested in the right company:

What Are the Short-term Sales Projections?

Whether annual or quarterly, sales growth looks great, but it is always not a good sign of investment. It is essential to check whether the sales growth is due to a one-time event or organic growth.

Hence, it is ideal for investors to raise questions about the short-term sales projection of the company. This immediate time frame would offer the investor an intense glimpse of the risks over the short term. It’s best to make this question open-ended so that the management gets an opportunity to explain things in detail.

How Do You Explain the Growth/Decline in Earnings?

Earnings are one of the most significant indicators of the financial stability of a company. There could be many reasons behind the growth in earnings or income, and it could grow because of an increase in revenue due to a product launch or a rise in selling prices. At the same time, earnings could also grow due to cost-cutting measures and constant revenue. As an investor, it is crucial to seek the real reasons behind the growth or decline of a company’s earnings. This will tell you about the company’s cost control efficiency or revenue-generating abilities that are instrumental in maintaining its financial stability.

How Do You Plan to Use the Cash on the Balance Sheet?

Asking these questions would help you to gauge the company’s capital allocation. The answers could indicate that the company plan to use the cash for a merger or acquisition or buy back shares in the open market.

Alternatively, the company might decide to save the cash for future expansion. This information is critical because it allows the investor to know the potential factors that could boost the stock prices or the factors that could drag in.

If the company says that it is saving for future growth, you can dig deeper and ask how it plans to improve its market standing, introduce a new product/ service, or explore a new market.

What Are the Reasons for Input Costs Changes?

Gross profit is a critical element in determining the viability of the operations. This question tries to understand the plethora of factors that could hurt raw material or labor costs. The company’s answer might offer valuable insight into the upcoming gross margin trends and potential earnings.

Where Do You Stand amid the Prevailing Market Competition?

Understanding the competition and how management views them will help investors judge the company’s future course because it could impact its operation and business model. When investors ask the management questions about who the current or potential competitors are in the future.

It may also alert the investor about the new products/services that may be coming to the market, which could impact the company at some point down the road. Consequently, management may also disclose how it plans to deal with these emerging competitors.

After identifying the names of the possible competitors, you can research whether these companies will introduce new lines of products or develop new technologies that could affect the organization’s profitability in the subsequent terms.

What Are the Potential Weaknesses?

The next question could be about the potentially weak areas of the company. For instance, if there is a partial shutdown of the business unit, which contributed 60% of the earnings particular business unit, investors can assume that there could be a future decline in the sales in the coming term due to this constraint.

However, it is difficult to decide whether it is wise to push the investment as this question will be of more excellent value if you follow it up with how the company plans to resolve the problem. You will then need to evaluate the viability of their solution or strategy before you make up your mind.

What Is Debt Target?

Ask about the debt to cash ratio of the company, and if management has a different target and why. Typically, a 40% or lower ratio is considered healthy, but a ratio above 60% could be alarming. It may imply that the company could have difficulty generating adequate cash flow to repay its debt, which could snowball and threaten its financial stability.

How Are You Investing in Your Human Capital?

Your concern should not be restricted to the physical investments the company makes. Human capital or employees are the company’s greatest asset, and it’s essential to understand how companies manage and invest in their human capital. It includes the workers’ education, upskilling, intelligence, skills, etc. No company can progress without investing adequately in its human resources.

Impact of Covid-19 on Investor Relations

The COVID-19 pandemic has brought in a level of uncertainty and anxiety in the market, leading to volatility. Institutional and individual investors alike have questions about the impact of the pandemic on the company’s business operations, revenue generation, and profitability.

Not just this, you might also consider asking the company about the intensity and duration of the impact on the overall financial health. You may want to know if the performance drops below a certain threshold, would the company be prompted to defer capital investment, lay off employees, or consider a major restructuring.

One pertinent question on the top of investors’ minds is whether the company would be able to pay dividends or repurchase shares due to the COVID-19 disruption.

As an investor, you might also want to know the company’s action plan for managing and monitoring the impact of the pandemic. On an investor day in the post-pandemic world, the Management team is expected to discuss its overview and judgment on the situation.

To be more specific, the management team may want to describe how they look at the recovery and at what pace do they expect things to get back to normal. While discussing this with the management on an investor day, look out for the other possible risk elements they might mention.

Moreover, when a company reiterates its long-term strategies, it can reassure the investor community that its vision is on track and focused on the result.

The Bottom Line

Companies prefer to conduct an investor day to stay transparent to their shareholders by disclosing the organization’s financial position, achievements, operations, and challenges. As an investor, you have made a significant financial commitment to the companies, and you have the right to information about it. You wouldn’t want to incur huge losses on your investment just because you didn’t scrutinize or ask the right questions. It is thus essential to make the most of investor day programs and ask pertinent questions.

These questions are instrumental in judging the strategic direction of the company. The key to any investor day is the dialogue between the company and the shareholder about the fundamental driver of the business.

Direct conversations with managers are an opportunity to access timely, valuable information. Investors can read about most of these happenings through newspapers and portals. But, the primary reason for attending investor days is to have the management explain things in its way and gauge their tone and body language.

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