|
Reprinted From the Nashville Business Journal
Keith Russell
Ronald Hinds, chief financial officer for Nashville-based Renal Care Group Inc., keeps a three-foot tall megaphone in his West End area office as a reminder.
Colored white with the letters "RCGI" -- the publicly traded company's stock symbol -- printed in large black type on its side, the megaphone was a gift from an investment banker who advised Renal Care during its initial public offering in 1996.
"He gave it to us while we were out doing our road shows," Hinds recalls, referring to the meetings company executives hold with institutional investors before a stock's initial offering. "He said you guys are a soft-spoken bunch, but you're going to need to get a lot more vocal when you go public."
Though Hinds didn't know it at the time, the advice seems particularly prescient now, given the roller-coaster ride Renal Care Group's stock price has been on in the past three months.
After reaching a 52-week high of $34.37 per share in late January and despite consistently beating analysts' earnings estimates for the past three years, Renal Care Group inexplicably saw its stock price plummet 56 percent in late March, to a low of $14.87 per share.
But now, less than a month after Renal Care Group's top executives aggressively lobbied its largest shareholders, the company's stock has gained nearly $9 per share off its low in March. During trading on April 27, Renal Care Group stock stood at $23 per share.
"We spent about three days going around and talking to our largest
shareholders," Hinds explains. "We were just going around asking
them, 'What are your concerns about our company, we want to address them.'
We knew we were performing just as well as before, and we wanted to assure
them of that."
Even the best volatile
Whether Renal Care's rebound is tied exclusively to its executives' vocal actions is a matter of conjecture. "It's hard to say a lot of the time why a stock price goes up or down," Hinds cautions. And in terms of the overall fiscal health of Renal Care Group, such short-term stock fluctuations should have negligible impact on the company's long-term future.
What is illuminating about the company's recent ordeal, however, is in the manner it shows how even the best-performing public companies can be bruised by the volatility of the stock market. The experience also sheds light on the extra demands placed on top executives for public companies -- whether or not they relish the spotlight.
At least one analyst understands the company's appeal to investors.
"I have them as a strong buy," says Jim Baker, managing director and co-director of research at SunTrust Equitable Securities.
A competitor's troubles
Renal Care Group's stars got crossed in mid-February, when investors fled Torrance, Calif.-based Total Renal Care Holdings Inc., the nation's second-largest and the only other publicly traded operator of dialysis services.
Total Renal was hammered because its earnings were cut in half due to operational problems related to an acquisition. Renal Care Group had no such operational concerns, but that didn't keep investors from souring on the company. By late March, Renal Care's stock was down below $15 per share.
"A lot of their problems were company-specific issues," SunTrust's Baker explains of Total Renal Care, a company he also tracks. "It might make you ask the question why would problems with a specific company bring down everyone else?"
Roller-coaster ride
Looking back, Baker says the answer to that question is clearer now. For starters, approximately 40 percent of the institutional investors of Total Renal Care were also significant shareholders of Renal Care Group. When Total Renal Care fell, investors may have taken another look at the sector and decided to get out of it altogether.
In addition, Baker says, a good portion of the shareholders in Renal Care Group were so-called "momentum" investors, or investors who play up a certain sector when it's hot but abandon it at the first sign of trouble.
"As soon as they see the momentum go out of a group, they get out of there," Baker explains. "Then you get the investors who watch the charts and get out once they see the price dropping. It can get to be sort of a self-fulfilling prophecy and it takes time for the value investors to move back in."
'A low-key company'
Of course, for Hinds and Renal Care's other top executives, hindsight is not a recourse. At one point Hinds says the company had received up to 200 phone calls from shareholders voicing concern about the stock price's fall.
"We would tell them how the company was doing and that this was a company-specific issue," Hinds recalls. "They were obviously discouraged."
Still, the company tried not to panic. Hinds remembers a board of directors meeting during which officials compared Renal Care Group's stock dip with those of other health care companies, an industry which has been battered by Wall Street in recent months.
"Some of the prices had dropped as much as 85 percent," Hinds says. "We were down ourselves," he says with a laugh, "but I suppose 40 percent is a lot better than 85."
Nonetheless, when stock price remained in its doldrums, Hinds says the company was compelled to take action, which for Renal Care Group's executives apparently is harder than it sounds. Despite its impressive track record and earnings growth (it has the fifth-highest income among Nashville's publicly traded health care companies), the company keeps one of the lowest-profiles among the city's ballyhooed health care community.
"We're kind of a low-key company. We don't really seek the spotlight," Hinds says. "And we kind of like it that way."
Even so, Hinds admits, the megaphone won't be leaving his office any time soon.
Keith Russell can be reached at 615-248-2222, ext. 111, or by e-mail at krussell@amcity.com. |
Press Releases