Within the investor relations community there exists a school of thought that investors do not pay an inordinate degree of attention to press releases unless there is a large dollar figure attached to them. We are not talking about press releases issued at quarter- and year-end formally disclosing the fiscal results of corporate activity. Of course, investors pay close attention to those. What we are talking about are the press releases that a typical microcap corporation will issue in the normal course of marketing its products and services. How much attention do everyday Main Street and Institutional investors pay to these press releases?
Housekeeping note: For the purposes of this discussion, a publicly traded microcap corporation is between $100 million and $500 million market capitalization, followed by a handful of analysts at boutique investment banks if any, traded on the NYSE or Nasdaq stock exchanges and has daily average share volume of 200,000 to 500,000. We are not talking about Pink Sheet or Bulletin Board stocks.
These microcap corporations are in a Catch-22, says Erin O’Reilly, founder of Appomattox Partners, a market intelligence boutique representing investors and corporations. They have no research following them or if they do, it is paid-for research and the objectiveness can be questionable. In her opinion, issuing “fluffy” press releases is pointless. But small investors are always watching and hungry for news on their microcap investments, she says. Also, because more stock brokerage firms will allow microcap stocks to be shorted below $5 per share these days, any good news can spook the shorts and cause them to quickly buy shares to cover their positions, which counterintuitively makes the stock go up and much more quickly than in normal long trades—a market action known as the “short squeeze” among Street pundits.
Also counterintuitively, many microcaps avoid issuing press releases after the start of the trading day at 9:30 a.m. Eastern time for fear of trading halts. They are afraid that a halt in trading of their stocks can only be perceived by the Street as adverse while news is disseminated. “NYSE and Nasdaq do not halt trading without a good reason,” O’Reilly says, however. And issuing press releases after trading starts could get the attention of investors to news that they otherwise would overlook, according to O’Reilly.
As in any company, the typical press releases that microcap marketing departments issue will announce new products, customer acquisitions, strategic alliances or other “non-material” news that does not have a direct bearing on the financial position of the company. O’Reilly says these types of releases are important to customers and investors, not excessive and absolutely should be put out. In addition, these releases can be a bonus for investors if they come out on a slow news day. In that case, the microcap’s stock could get on the radar screen of the news media. Then other investors could see it and get the stock price growing, according to O’Reilly. “How many times has a stock gone from 25 cents to 40 bucks a share?” she asks rhetorically of this kind of phenomenon.
O’Reilly is not the only IR professional who has seen business news go viral. Beverly Jedynak, president of Martin E. Janis Public Relations, once represented Alexander Grant and Company, the predecessor of consulting firm Grant Thornton. They pitched and pitched a story on behalf of Alexander Grant about abandoned property that many states hold in trust for the rightful owners until they reclaim it. Initially, no media bit on this pitch, according to Jedynak, until a reporter at the Journal of Commerce wrote an article on it. Then Alexander Grant began getting calls left and right from other journalists looking to pick up the story. In due course, the business of Alexander Grant benefited.
Donna Stein, managing partner of Donna Stein & Partners, also thinks non-material press releases are important for investors. As an example, she remembers one press release that a microcap pharma company issued announcing its new office location near the big pharma companies. There was no news of any deals with the big pharmas, but investors could draw inferences by reading between the lines of this press release. “Any news that illustrates that you are making progress on your business goals and objectives is important to investors,” Stein says.
In addition, she says other communications vehicles such as general marketing email newsletters are useful for keeping investors informed as well as customers and potential customers. “Microcap corporations should also put out soft news items about project updates and new hires,” Stein says. “All audiences—investors, customers, employees—want to see growth in a favorable direction.”
Also serving as an adjunct professor of public relations and investor relations at the S.I. Newhouse School of Public Communications at Syracuse University, Stein has an interdisciplinary perspective on the roles of PR and IR within the operations of a corporate communications function. In her opinion, for a public company to succeed you need to have the support of customers and employees as well as investors. By not paying attention to them microcap corporations run the risk of losing their support, according to Stein.
One way to gain the support of customers and employees is through the proper issuance of news via press releases. “The corporation must have a product or service that is needed in the market and you need employees engaged in their roles to deliver those products and services,” Stein says. “Do those tasks well and the company will prosper. Proactive investor relations has a role, but you have to have your corporate house in order first. When the business is on the mend and real progress is being made, then it’s time to communicate that to the Street.”
Ephemeral effect of PR
While many IR professionals think of press releases as having a very ephemeral effect on the stock price of microcaps, the fact is that this information when issued over PRNewswire or Business Wire will be indexed by Google, Bing and other Internet search engines. Then 10, 15 or more years in the future, reporters will still be able to find this news and the company can generate incremental positive publicity that may impact the stock price. “In the end, marketing has an equally important need to issue news,” Jedynak says. “The stock price reflects the long-term business value. But if not conducted carefully, IR can frustrate marketing’s release of products and development of sales.”
As a final note, press releases are important to show a microcap is a going concern, O’Reilly says. A steady stream of news will keep investors engaged, according to Tony Schor, president and founder of Chicago-based Investor Awareness, Inc., a public and investor relations firm. In particular, institutional investors will read press releases, he says. “Marketing press releases build confidence of investors, customers and employees,” Schor says. “It’s important to keep an ongoing communication, but good news is better not more news is better. The goal of PR is to educate, intrigue and inform.”
Derek Handova is a freelance journalist, blogger and content marketer in the high-tech industry with an emphasis on social media and related channels. He received his masters in business administration (MBA) and bachelors in journalism from California State University, Long Beach (CSULB). The opinions expressed in this article are purely those of the interviewees or his and do not reflect the views of any of his past or present employers.