While some consider investor conferences to be nothing more than an opportunity for a company to hype its story to an unsuspecting public, they can also provide investors with a treasure trove of useful information. That is, if the investor knows what to look for.

An investor conference is a formal presentation made by a company - usually in conjunction with sell-side firms that cover the company. Typically, the sell-side firm's clients are invited, but the company may also invite the general public if it wants to attract more investors and the brokerage firm wants to attract more customers. Companies advertise these conferences on financial websites, in magazines or on their own websites. Also, for investors who can't attend, companies sometimes make transcripts available. Read on for some tips on getting the most out of an investor conference.

Play Detective
Ignore management's snappy PowerPoint presentations and typically optimistic outlook. Instead, look for things that could go wrong. Watch for how the company's management answers "what if" questions, such as:

  • What if the company's flagship product fails
  • What if the market for the company's products dries up?
  • What if another competitor enters the market?
  • What if the company needs to raise money in the future?
  • What if a key person at the company quits, gets fired, or dies?

You should also try to decipher whether management is truly enthusiastic about something, or is merely going through the motions.

Signs of confidence include:

  • A firm (but not loud) voice
  • A willingness to benchmark the company and/or its products against those of a competitor
  • An openness about the potential risks involved

Signs of a lack of enthusiasm include:

  • Avoiding eye contact
  • An unwillingness to provide any guidance (either in terms of earnings or some other benchmark)
  • A speech that summarizes what could otherwise be gleaned from reading the annual report

As a great example of how being able to read management can pay off, consider Video Display (Nasdaq:VIDE). In the late '90s, the company, which makes specialized cathode ray tube screens used by hospitals, attended a conference of small cap investors. While few seemed to pay the company much mind, management emphasized the possibility that its products could be used in a variety of military applications. (For related reading, see Get Tough On Management Puff.)

In fact, its chief executive, Ron Ordway, was extremely passionate about the company's opportunity to become a big supplier to the U.S. armed forces. He talked in great detail about how big military deals could be to the company, and about what he thought they might do to the stock. But he wasn't just "hyping" the stock or the company - he appeared to actually believe in what he was saying. He was down to earth, genuine and extraordinarily open about both the risks and the opportunities.

In any case, it turns out that management's optimism was well founded. A few months after the public comments were made, the company landed a U.S. Army contract and the stock soared.

By analyzing how management responds to questions, the investor will be better able to both weed out companies with uncertain futures, and isolate those with unrecognized growth opportunities.

Try To Determine Liquidity Needs
Even the best product in the world will fall flat if a company lacks the capital to promote and distribute it. Investors should be on the lookout for any clues that the company may be short on cash.

Look for:

  • A recent deceleration in cash flow
  • Management's use of, or excessive reference to, its credit lines. The most successful companies fund growth using their cash flow, and are not overly dependent on credit. (For more on corporate debt, read Debt Reckoning.)
  • A lack of cash on the balance sheet
  • The recent loss of a vendor or other key supplier (this may be a sign that the company is behind on payments)
  • Management's stated plans to do a stock or debt offering to raise cash to fund growth

While not having enough cash is certainly a big problem, a company's need to raise capital can be equally problematic. This is because companies that are short on cash and desperate for funding must often resort to highly dilutive securities offerings (such as secondary or convertible bond deals). (For more insight, read The Essentials Of Cash Flow.)

As an example of how liquidity issues and dilutive security offerings can have an impact on a company, consider the convertible bond deal that JDS Uniphase (Nasdaq:JDSU) made in 2006.

In order to firm up its balance sheet and pay down debt, the optical equipment maker closed on $375 million of 1% convertible bonds. Investors breathed a sigh of relief as liquidity concerns were abated. However, because the company resorted to a convertible debt offering as a means of raising capital (and the securities were converted into common shares), the potential for dilution quickly became an issue, and both retail and institutional shareholders sold the stock en masse. (For related reading, see Convertible Bonds: An Introduction.)

Be wary of companies that are short on cash and may need to raise money!

Identify Operational Catalysts
Management teams typically use investor conferences as a venue to announce new initiatives or to lay out their plans for the long haul. Investors should listen for any catalysts that could drive earnings going forward.

Be on the lookout for companies that:

  • Indicate an interest in refinancing their debt
  • Are considering acquisitions that could be immediately accretive to earnings
  • Are planning on releasing one or more large, revenue-generating products
  • Have recently, or plan to switch vendors to lower their cost of goods sold
  • Are about to realize the benefit of recent layoffs or other cost-cutting measures

For example, in 2000-2001, Callaway Golf (NYSE:ELY) made appearances at several investor conferences and highlighted the potential for its (then) new golf ball line. The savvy conference participant that was able to identify and take advantage of this catalyst made a ton of money. In fact, Callaway's stock increased from about $15 in 2000 to more than $25 in 2001 - almost all on anticipation of the new golf ball.

Find Out How Management Plans to Enhance Shareholder Value
In a perfect world, all companies that report improved year-over-year earnings would see their stock prices go up. In reality, the market isn't that efficient. Therefore, investors should be on the lookout for indications that management has other plans to enhance shareholder value.

Look specifically for companies/management teams that:

  • Are planning road shows to promote the stock
  • Regularly talk to or announce plans to talk to the press about future growth prospects
  • Have recently hired, or intend to hire a public relations firm
  • Are focused on research and development (R&D), and announce plans to build out new and exciting products
  • Hire top-notch talent, or anticipate hiring key executives away from other companies

For example, back in 1997, an employment provider company Labor Ready (NYSE:LRW) was struggling for recognition, but at an investor conference, its then CEO Glen Welstad, indicated that he and other members of management were going to aggressively promote the company (and its growth opportunities) to investors and the press at a host of forums in the months ahead.

Welstad's efforts were richly rewarded; Labor Ready's stock went from about $5 to more than $25 a share in a year's time. Conference attendees who knew this was coming and took advantage of the PR blitz made a mint!

Getting the most out of an investor conference is all about reading between the lines: listen carefully to what management is saying as well as how they are saying it, and try to connect the dots. You'll be happy you did.