Sponsored Research : Definition and Explanation
Unless otherwise noted, investors should view all of our reports, updates, notes, alerts and podcast interviews as sponsored content, or sponsored research. What does this mean?
It means that the content we produce is paid for by the issuers or a third party. Although we are paid to publish and distribute the content, we do not take on any assignment unless we believe that a particular company or stock has merit; i.e., has meaningful upside potential that outweighs the risk. Given the risk profile of many of the companies we have covered or written about, the underlying stocks’ risk/reward is akin to venture capital which has a low success rate (batting average) but when there is a winner it can move higher in value exponentially. Therefore, in the case of any stock we write about or engage in an interview, we believe it has the potential to generate outsized returns despite its inherent, above-average business, market, or financial risk.
Why Sponsored Research?
The reasons behind companies’ seeking our coverage vary. In most cases, the firms on which we publish reports cannot attract traditional research coverage by investment banks and broker-dealers. They may wish to add to their shareholder base and overall value because they are contemplating future up-listings or are perhaps seeking to use an opportunity such as greater awareness and visibility as an opportunity to raise funds for acquisitions or working capital. In nearly all cases, we find that while management teams know their industry and can speak to their partner or customer audiences, they have difficulty presenting their company to prospective investors. This is one of our strengths, as we attempt to succinctly describe the underlying companies, their industries, where they fit in the food chain, etc. Moreover, we deem it important for the research to be presented in the proper format.
Without such reports or interviews, it is likely that the stock would languish and speculative investors would not have an opportunity to learn or potentially invest in such a company. However, given the companies’ risk profile, we endeavor to list what would be considered leading risks in the risk factors sections found in our coverage initiation reports.
How are target prices determined?
Determining a target price for low-priced, early stage companies is no easy task. This task becomes more complicated when there is little history of revenue and/or operating results. We strive to use larger, comparables via a Price/Sales, or a price/EBITDA methodology when possible. Sometimes, certain industries such as biotech have a general rule of thumb based upon the development stage, potential market, etc. We have often found that the trading of our covered companies tends to be milestone or event-driven which can result in outsized gains and these stocks may have traded at much higher levels in the past as a result; thus, new events may return the shares to previous or future highs.
It is important to note that our target prices are not a prediction of the future; rather, these targets are subjective estimates based upon factors we believe are reflective of potential prices and value. Given what we characterize as public venture capital (high risk/high potential reward) and perhaps a history of higher prices and valuations, our target prices can be multiples of the current value of an underlying stock under coverage.
Why does GSCR issue press releases and post on social media?
We routinely issue a press release announcing our research coverage and include excerpts from the report to ensure that the underlying company’s investors are made aware that there is new information and a pertinent (although paid) opinion on their investment. Sometimes the issuer or a related party may also issue a release or an announcement. We may also announce coverage and a brief opinion on social media. A single tweet on Twitter and a single post on Facebook and other sites such as LinkedIn constitute our direct posting. While we endeavor to distribute our content to a broad investing audience, our primary focus is the production of, not the distribution of, sponsored content.
Does GSCR send emails regarding new sponsored content?
We typically produce and send emails to our opt-in subscribers announcing new research with excerpts of the reports along with a notation that we have been paid and the amount.
What is stated in the GSCR Disclaimer?
In general, our disclaimers, which can be found on each report, update, alert, press release, email blast or podcast interview webpage, note how much GSCR is paid to publish the content, that our compensation is not tied to views expressed in the content, and that information is largely derived from the companies themselves. Podcast interviews are usually 5-15 minute audio interviews where GSCR engages in a Q&A and provides a general assessment of a company or its industry and may not be covered on a research basis with a price target.