If you, like me, occasionally invest in companies and listen in to the quarterly earnings calls with Wall St. analysts, you may have noticed something. The questions that analysts ask on these calls are 90% FINANCIAL questions -- about cap ex, EBIDTA, SG&A, EPS, etc. Analysts are finance majors and as a result, have tunnel vision.
Stock analysts rarely have any marketing background, or management background. They don't even consider qualitative issues that affect a company's performance--what competitors are doing, what customers want or a shift in their attitude, company reputation, the quality of top management and whether they are making mistakes, long-term strategy, public relations, the effect of their advertising campaigns, etc. They rarely ask questions in the open calls that have anything to do with these "qualitative" topics.
However, these qualitative issues, the "fundamentals", are what can easily sink a company or make them a star. Here's one example. Weight Watchers. When Mr. Jim Chambers took over the CEO spot in 2012, for the next four years he basically ran the company into the ground due to mismanagement. Revenues slipped from $1.8 billion to $1.1 billion under his reign. There was no innovation, no compelling reason for dieters to chose Weight Watchers over the competition. They had a "one size fits all" program with no special tracks for seniors, men, women, teens, people with diabetes, people with food allergies, etc. By contrast, NutriSystem DID have dedicated programs for these different groups, and they advertised them.
Top management went so far as to say that they "didn't need customers under age 48", since that was their prime customer group. Really? You are going to simply ignore a whole younger generation of dieters age 18-48? So much for planning for future business. In addition, their 10,000 meeting group leaders were complaining about low pay and morale was suffering. In a dynamic and fast-moving market such as weight loss programs, Weight Watchers was acting like a dinosaur--analyzing every possible new service to death and taking too long to roll things out. Finally, top management took an insular and arrogant attitude about seeking out new retail partners to broaden their exposure. While NutriSystem made its program available via partners like Wal Mart, Costco, QVC cable TV, Amazon and Target, Weight Watchers did nothing--zero partners. All this hurt revenues and attendance badly, and $600 million in revenue evaporated.
Did stock analysts even discuss these issues in earnings calls and research reports? No. They fail to understand that top management's actions and strategies, and basic marketing actions have just as much of an effect, if not more on a company's success and stock price. The skill with which a company rolls out new products and services, how well they execute, and listen to what consumers want, drives the financial results -- not the other way around.
By the way, Weight Watchers has made a big turnaround in 2017, growing revenues and attendance in strong double-digits. Why? Because CEO Jim Chambers resigned, replaced by a retail-savvy female CEO, Mindy Grossman from the Home Shopping Network, combined with a 10% investment by Oprah Winfrey, plus her participation on the Board and active role in commercials as a spokesperson. Note to analysts: These are NOT financial issues. Nothing to do with cost controls, cutting expenses, capital expenditures, etc.
So, when listening to a stock analyst or reading their equity buy/sell recommendations, just take them with a grain of salt, because you are only getting 50% of the story--the financials. Dig deeper and get the marketing and management information for best results.
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