When analyzing the quality of companies, investors often focus on financial metrics such as earnings growth or balance sheet strength. And while financial statistics are certainly an integral part of any investment analysis, investors can benefit by looking to non-traditional statistics to find high-quality companies.
Two areas that are often indicators of a great company are employee and customer satisfaction. Large companies strive to maximize value for all stakeholders, not just shareholders.
Two metrics investors can use to measure customer and employee loyalty are Net Promoter Scores and Glassdoor Ratings.
Net Promoter Scores
The net promoter score (NPS) is a measure of how likely a brand’s customers are to promote it to others. It is produced by conducting a simple survey that asks how likely a customer is to recommend the product or service to a friend. Not every company will take the time to conduct these surveys, but those who take their brand image seriously will hire third-party marketing agencies to survey their customers on an annual or semi-annual basis.
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The NPS is derived by subtracting the percentage of detractors (probably not recommending the product) from the percentage of promoters (most likely recommended). The resulting score ranges from minus 100 to 100.
A negative score is a big red flag as it means the majority of customers would not recommend the product, while a score above 60 is generally considered the mark of a highly regarded brand.
Marketing agency Invesp estimates that word of mouth accounts for $6 trillion in annual consumer spending and is five times more effective than paid marketing. So a high NPS score not only indicates that customers love a company’s products, but it also means that the company probably needs to spend less on marketing to drive sales.
To find a company’s NPS, you have to do some digging. The company’s investor relations page is a good place to start, as companies with high scores often share these in presentations or letters to shareholders.
There are also companies like Comparably, which conduct its own independent NPS surveys of hundreds of major brands.
Footwear clothing company allbirds (NASDAQ: BIRD) shared its impressive Net Promoter Score of 86 in its most recent investor presentation. Customer loyalty for this brand is best-in-class, which is why the company reports that more than 50% of its revenue comes from repeat customers.
The strength of a company’s brand can be difficult to measure simply by looking at its financial data. Fortunately, Net Promoter scores offer investors an alternative measure of customer sentiment.
Happiness at work is another good indicator of a strong company.
Glassdoor provides incredibly valuable insights into a company’s employee sentiment. You can read employee reviews, see how likely they are to recommend their employer to a friend, and even find the percentage of employees who approve of the CEO.
This is a wealth of data that many investors miss by looking solely at financial statements during their research. Many of the best companies in the world, such as: Alphabet (NASDAQ: GOOG) and Amazon (NASDAQ: AMZN) have remained industry leaders for many years because of their ability to attract top talent to their employees.
in 2021, Gartner (NYSE: IT) found that 48% of companies in a survey had serious concerns about mass revenue. Not only is employee turnover extremely costly, it can also be very disruptive to business operations.
Positive Glassdoor reviews and ratings can thus give investors confidence that a company is both attracting and, more importantly, retaining top talent.
Zoom video communication (NASDAQ:ZM) is a perfect example of a company with incredibly high Glassdoor stats. Eighty-eight percent of employees say they would recommend the company to a friend, and a whopping 94% of employees approve of CEO Eric Yuan.
While the company’s stock has taken a beating due to recent risk-off sentiment in the market, Glassdoor’s reviews show that a strong company is loved by its employees.
Thinking outside the box
Long-term investors can give themselves an edge by thinking outside the box when conducting their research. Net Promoter Scores and Glassdoor Reviews are two ways you can gain unique insights into a company’s strength in pursuing competitive returns. Remember, as with traditional metrics like those on the balance sheet or income statement, it’s important to consider the whole picture of a company and not make investment decisions based on a single feature or number.
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Suzanne Frey, an executive at Alphabet, serves on the board of directors of The Motley Fool. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, serves on the board of directors for The Motley Fool. Mark Blank holds positions in Zoom Video Communications. The Motley Fool holds positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon and Zoom Video Communications. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.