Friday, October 22, 2010

Does Bad PR Make For A Good Investment Opportunity?

There is really no question "if" there will be another public relations scandal that taints a publicly-traded company. The only questions really revolve around "when", "how bad" and whether the next bad PR event will create a buying opportunity for shareholders. Like most other kinds of turnaround investing, though, investing in the face of bad PR can be a high-risk/high-reward situation. Accordingly, it is a good idea for investors to do what they can to tilt the odds in their favor.


Assess the Situation Across Four MetricsWhen approaching a stock that looks cheap because the company has made a very public gaffe, there are a few key constituencies to keep in mind. Ultimately the reactions of these groups will go a long way toward separating the wounded-but-will-recover from the permanently maimed.

Impact on CustomersIt probably seems obvious that the first place to check for fallout is among the people the company depends upon for its business - if a company alienates its customer base, and they do not come back, the company is doomed. Likewise, if a brand's cache or premium positioning is tarnished, the company may never again be able to charge similar prices. On the other hand, if customers really just do not care about the problem, it will likely not have any lasting impact.

Click below to read the complete piece:
http://www.investopedia.com/articles/stocks/10/bad-pr-make-investing-opportunity.asp

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