There are many factors that go into sell-side analysts’ decisions to pick up coverage on a stock. Some of the questions they will ask themselves include:
- How much trading volume does the stock have?
- Can I interest my buy-side clients in this company?
- Can I generate trading revenue for my bank?
- Is there a clear path to growth and revenue for the next 3-5 years?
- Do I understand the company story and what makes them unique?
Considering those questions, there are a few strategic ways you can position your company to garner sell-side coverage.
- Hone your pitch: Can you clearly communicate why an analyst should want to cover your company? Is there potential for growth? How is your company and forward-looking plans different from those of your competitors? What sets your management team apart? Have you clearly conveyed your new technology, initiatives or path to regulation? Knowing how to answer these questions will prepare you for successful conversations with analysts.
- Set realistic goals and strategy: Can you clearly lay out a 3-5 year strategy outlining your revenue goals, growth goals, and the ways in which you will achieve those goals? Setting a realistic, reachable 3-5 year plan allows analysts to get comfortable with your financials and set benchmarks for your company that they will return to time and time again as they cover your stock. They will use these defined plans to build out their future projections and financial models for your company. The goals you lay out in the beginning become the foundation for many of the questions you will hear during earnings calls and one-on-one meetings.
- Forge relationships with the appropriate-sized firm: If you are a small or micro-cap company, don’t expect an analyst at a large-cap bank to pick up coverage on your stock. Typically, they will not be interested in a low-volume or thinly-traded stock, as it will not generate interest from their buy-side clients or trading volume in general. Instead, forge relationships with a smaller sell-side shop or boutique firm. Generally, a boutique sell-side firm will have analysts that are interested in covering your stock and excited to partner with you from the beginning. These relationships can also lead to banking deals down the road when you need additional financing.
- Get your name out there, and don’t be afraid to go on some “dates”: Make a concerted effort to say yes to the right conferences, non-deal roadshows and industry events. This exposes you to other analysts and bankers that may not be familiar with your story. Also, make an effort to get to know analysts and associates at other sell-side shops. Go on some analyst “dates” and get comfortable with each other. Once your company grows, these analysts may pick up coverage on your stock, or an associate may roll out their own coverage and include your stock. An analyst may leave one firm and pick up coverage of your stock at a different firm. In the meantime, they have gotten comfortable with your story, your strategy and your management, making it easier to initiate than if they were starting from scratch.
Remember these key tips for attracting sell-side coverage:
- Start out with a clear, 3-5 year revenue and strategy plan
- Set goals that you can meet and beat
- Understand your size and the sell-side firms that would be most appropriate for you
- Keep your exposure levels in the industry robust and high quality
Each of these factors will open a clear path to gaining sell-side coverage in the near term, and ultimately, more coverage in the long term.
Jessica Bornn, Principal