Should MicroCap Companies Give Guidance?
In the newest issue of MicroCap Review magazine, three of the most well-known names in microcap investor relations answered the question; “Should MicroCap Companies Give Guidance?”
Ted J. Haberfield – MZ North America:
“Guidance can be presented in both quantitative and qualitative forms, but before an issuer provides guidance to the street it should ask several questions:
a) Will the company be able to maintain guidance in the future?
b) Will the guidance being considered have a material effect on the company?
c) Can the company provide a clear time-line to achieve the guidance?
d) Does the company feel comfortable answering potential questions that the guidance might cause?
If the answer to any of these questions is “No” then the company should reconsider issuing guidance.”
Rob Fink – Hayden IR:
“Management should strive to provide transparency, and help the investment community gauge progress and understand the long-term opportunity. If visibility is sufficient to provide specific guidance, then guidance makes sense. However, the punishment for missing guidance, both immediate and longer term in the form of lost credibility, is significant. However, if revenue and earnings is not predictable, there are other ways companies can help guide investors and provide mile-stones for investors to gauge progress. For example, management can provide metrics about increasing the size or reach of the sales force, about the number of new products launched, about shifts in revenue mix or improvements in gross or operating margin. In this way, you are helping investors under-stand some of the levers that impact and drive the business. Investors can utilize this information to create models. These data points or milestones also help an investor measure management’s ability to perform against its stated goals. The more insight an investor can have into your business, the better they can understand it, increasing an investors’ ability to become a shareholder.”
Jeffrey Goldberger – KCSA:
“Starting with the dot-com bust, through the recent financial crisis, the trend of companies, big and small, is to reduce or eliminate guidance. For those reducing guidance, the trend is to shift from annual guidance (with quarterly updates) to quarterly guidance. The rationale is that being held accountable to quarterly guidance is a very difficult way to manage a business and may cause management to make business decisions simply to meet guidance. At the other end of the spectrum, many companies used the dot-com bust and financial crisis to completely eliminate guidance, indicating that they no longer have the insight necessary to provide accurate guidance. While I could argue either way in terms of which is better, I typically advise my clients to provide guidance only if they are confident that they have strong visibility into their business and are committed over the long-term to issuing guidance. Once you start providing guidance, it is expected that you maintain this practice.”