Question:
I’ve seen a lot of advertising lately hinged on a company providing stellar customer service. This got me thinking: Is there a correlation between companies with a good customer service reputation and their stock price? More interestingly, are there any companies notorious for bad service that are actually good stocks to buy?
Answer:
More often than not, management wants the best for their company. They want to grow earnings and to be profitable, so they are going to take that from start to finish. Everything they do to make the company better should show up on the bottom line. In that regard, yes. Companies with good customer service should prove to be good quality stocks, as most consumers will not pay for bad service.
Some companies, like Wells Fargo & Company (NYSE: WFC) and U.S. Bancorp (NYSE: USB), are strong financial companies, which are renowned to be high quality. However, most of this is as a result of how well management has run the business. They have reasonable customer service.
Additionally, consider Verizon Communications (NYSE: VZ) and AT&T, Inc. (NYSE: ATT). In our experience, Verizon has both great phone service and great customer service. AT&T has slow customer service. Looking at the two stocks, AT&T looks to be the more attractive of the two. Both stocks are great dividend payers, yielding more than 4.50%; however, Verizon looks to be quite pricey at its current levels. Verizon currently trades at 20 times earnings, while AT&T trades at 15 times earnings. Over the past 12 months, both stocks have beaten the market and have almost the same 12-month return of nearly 23%. Furthermore, Verizon is nearly twice as levered as AT&T, with a debt-to-equity ratio of 156. So it seems in this case, the better service of a company, the higher the stock is driven, making the stock appear expensive, or the worse the service, the less attractive the company’s shares are making them cheaper.
You certainly can’t base your investment strategy off of that, as there is much more to it than customer service. Consider Spirit Airlines Inc. (NASDAQ: SAVE), a no frills airline carrier. Spirit charges up to $100 to carry on a bag—not check a bag. Of course, Spirit also charges for checked bags, and Passengers have to pay for Cokes and pretzels while on board. If you want additional legroom, you have to pay for it too. Say what you will about those charges, the add-on luxuries flow to Spirit’s bottom line. Early investors have been laughing all the way to the bank, with shares soaring 45% since going public in May 2011.
Overall, as an investor, you do not want to confuse customer service with a stock. You shouldn’t go into a store and judge the store’s stock merely because you like or don’t like the products they sell. You need to look at the balance sheet and income statement. As an investor, your concern should be with the profitability of the company.
At Henssler Financial we believe you should Live Ready, which includes knowing more about a stock than the products they sell. If you have questions regarding your stocks, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
