More important, management can better evaluate its operational and financial restructuring alternatives. By interpreting market signals, management can compare its expectations with the market’s. ![]() ![]() My research and consulting work has demonstrated that the market can, for example, give management information on whether the company is valued as a going concern or on the basis of some anticipated breakup value. They have found they can learn a lot if they analyze what the stock price tells them about the market’s expectations for their company’s performance. Sophisticated managers have begun to realize that they should not continually argue over what the stock market has to say. In an economic environment dominated by corporate takeovers and restructurings, managers can no longer be concerned simply about whether the company’s shares are over- or undervalued. It is time to reconcile management and market values. If a company’s management can’t figure out what’s going to happen, how can the market? Moreover, managers contend that value is sensitive to different assumptions about the economy, the competitive dynamics of the industry, and the company’s strategic position. While managers are interested in how the market values their companies, they are skeptical of a process that seems to depend on an unseen analyst’s prophecies about a very uncertain future. My work with executives not only confirms the pervasiveness of the belief that the market undervalues companies but also demonstrates that it is generally unsupported by analysis. Tellingly, only 2 % thought their stock was overvalued, while a dramatic 60 % said the market undervalued their shares. ![]() Yet in a 1984 Louis Harris poll of top executives from more than 600 companies, fewer than one-third thought the market fairly valued their company’s stock. A company’s stock price is the clearest measure of market expectations about its performance.
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