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The Perception of a Business and the Effect on its Stock

 

Brand awareness and consumer perception of a business are vital to the wellbeing and growth of any company. In light of historic challenges stemming from the COVID-19 Global Pandemic, what customers think about a brand is crucial to whether they can survive these challenges or not.

 

But how does consumer perception of a business correlate with the price value of the common stock? To understand this correlation between a company’s perception and its effect on its stock, we need to examine the factors that may anchor the stock price. There is a correlation between perception and stock price that also needs discussion.  Let’s examine how being aware of a business’ perception can make you a more savvy trader.  

 

Traditional Factors of Stock Valuation

For the layman, understanding how a stock value changes, it’s essential to evaluate various factors that may influence the stock price. Some of those factors are economic and market trends related to the business’s product offering, the supply of the items or service, consumer or business demand, and more. Global events can influence public confidence and consumer spending or general misconduct on the part of a company that depresses the perception of the business. 

  • Company Performance and P/E ratio
  • Supply and Demand
  • Market Trends 
  • Economic Trends
  • Consumer Perception
  • Social Trends
  • Geo-political Events

As witnessed in 2020, a “black swan” event can impact social and public health trends, which may affect the price and value of your business and stock offerings as well. These can heavily weigh on the economy as a whole and disrupt value on a whole swath of the economy. While some factors, such as company performance, may be in your control, others, such as a once-in-a-generation circumstance, may not be in your company’s control. 

 

How Does Public Perception Affect Stock Price?

As discussed, there is any number of variables that may push or pull any stock price. One of the more crucial variables is public and consumer perception. Take Volkswagen, for example. Beginning in 2008, Volkswagen began manipulating data on the carbon emissions of certain vehicles they made. 

 

When they pushed falsified data, Volkswagen also used a misinformation campaign to highlight their performance records. When the misreporting was discovered and reported on beginning May of 2014, Volkswagen’s value dropped by ⅓ in less than a few days due to the negative news and depression of its public perception. 

 

Whether the factors that affect stock prices are ones a business may control or not, planning for those variables will steady the ship in stormy weather. It’s said that markets like stability and businesses that have action plans for factors that may push in one direction or other will influence its stock value.

 

Another study on public perception and the effect on a company’s stock value offers a contrarian perspective. In his book, “What Investors Really Want,” author Meir Statman found that what investors thought about a business influenced what they believed would happen positively to the value of an investment over time. 

 

What Statman found was that while a considerable portion of investment occurs in a company’s perception, some influenced by the name and stock name was outperformed by businesses with less than favorable perception. While the author claims that unfavorable companies beat favorable companies by “2.5% per year,” one factor that may inflate this could be related to those companies’ marketing efforts. 

 

Whether positive or negative, the truth is that a business’s public perception has a correlative effect on the value of your share price. 

 

Your Online Perception Is Your Business Reality

With almost the entire world online, especially right now due to the current Pandemic, much of a business’s perception is what is seen online. With consumer confidence so heavily influenced by what is published and easily searchable for a business, it’s imperative for business to focus on their online reputation management strategies. 

 

A business and its stock price are heavily influenced by several trends and factors that they may, or may not, be able to control. But realizing the need to have an action plan in place for those variables gives a business stability in shareholders’ eyes. Actions are taken before any negatively affecting factors also help stabilize your company’s public perception.  The opportunity for a retail investor lies in noticing these trends, factors and taking action on them.