How to Improve Your Due Diligence by Taking Advantage of Investor Relations

By Samuel Taube There’s no single right way to do due diligence. Everyone has their own style when it comes to financial research. Some people check fundamentals through data sources like Stock Grader or Google Finance. Others are more hands-on and prefer to look at the income statement and balance sheet.

But have you ever done old-school DD? In other words, have you ever picked up the phone and called investor relations?

IR is more than just a back page on company websites. More often than not, it’s an entire department. And it’s dedicated to maintaining a beneficial relationship between a company’s management and backers. That means it can be an extremely useful resource for your investing decisions.

Below, we’re looking at the useful roles played by investor relations teams. We’ll also discuss some ways you can take advantage of them to improve your due diligence.
What Is Investor Relations?
To put it simply, investor relations is a department that links management to investors. IR provides investors with accurate and timely information about a company. And it also provides market intelligence to management.

As an example, IR teams manage shareholder meetings, press conferences and earnings calls. They also act as the faces of their companies during financial crises. Their “back-end” duties typically include legal compliance tasks like filing SEC reports. And they update management about market sentiment.

Some companies put investor relations under PR or marketing. But more commonly, IR reports directly to the chief financial officer or CEO. Thus, IR provides investors with relatively easy access to C-level executives.

In the pre-Enron days, only larger public companies had investor relations departments. But the Sarbanes-Oxley Act of 2002 increased reporting requirements for all public companies. That made IR teams much more common. Today, most midcap companies and some small caps have them.

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How to Use an IR Department to Improve Your Due Diligence
As we said, IR departments give shareholders relatively easy access to management.

You shouldn’t expect to get a lunch meeting with the CEO and CFO. But IR inquiries get some response from executives surprisingly often. The CEOs of some S&P 500 companies like Red Hat (NYSE: RHI) are known to return calls from ordinary investors.

And if you get a response from management, it may contain actionable insights. Companies are usually pretty tight-lipped when it comes to nonpublic information. But if you ask the right kinds of questions, they may hint at some market-moving tips.

Whenever possible, ask yes-or-no questions. It’s a better bet than asking the company to explain things. For example, instead of asking, “What’s your marketing strategy?” try “I understand that your marketing strategy consists of X, Y and Z. Is that correct?”

By asking straightforward, hard-to-dodge questions, you can get a small window into the mind of management. That’s why investor relations is more than just a corporate webpage. It can be invaluable for due diligence.
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Source:: Investment You

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