Iridium GEM Fund Insights - 1Q 2026

A common refrain heard in boardrooms is that our company is undervalued. Executives point to earnings growth, market expansion, and a strong balance sheet, yet the stock price remains stagnant. The assumption is often that analysts and investors are failing to see the company’s true potential, and that the market is missing something.

From a buy-side perspective, the reality is often the opposite. Many companies are not undervalued by accident - they are stuck in a pattern that limits their valuation. Institutional investors are not just looking for growth; they are looking for sustainable value creation - something that many companies struggle to demonstrate convincingly.

Why earnings growth and margins alone are not enough

For many executives, growth and margins are the ultimate measure of success. Expanding revenue, improving margins, and growing market share should, in theory, make a company more attractive to investors. Yet, time and again, companies with strong earnings trajectories fail to translate that into meaningful stock price appreciation.

The problem is that not all growth creates value. Investors are not just looking at how fast a company is growing; they are asking where that growth is coming from and whether it is generating returns above the cost of capital. A company that expands aggressively but only earns a modest return on its investments may be getting bigger, but it is not necessarily getting more valuable.

Companies that consistently attract premium valuations share a common characteristic: they generate returns on invested capital (ROIC) that exceed their cost of capital. This is the foundational metric that shows investors whether a company is creating economic value or simply recycling capital without compounding it.

A high-growth company with mediocre ROIC is unlikely to sustain its valuation premium, while a company with moderate but high-return growth is far more attractive to investors. This distinction is where many executives misread the market.

The problem with capital allocation decisions

Even companies with strong ROIC and promising growth prospects can find themselves undervalued if they misallocate capital. How a company deploys its free cash flow - whether reinvesting in high-return opportunities, making (value accretive) acquisitions, or returning cash to shareholders - has a profound impact on investor confidence.

Yet, in many companies, capital allocation decisions are often driven by tradition or influenced by large shareholder groups rather than a well-understood allocation framework. In businesses with significant family ownership, for example, the focus in boardroom discussions often shifts toward extracting capital by maximizing dividends rather than optimizing capital deployment. While dividends are important, they should not come at the expense of reinvestment when high-return opportunities exist.

From an institutional investor’s perspective, a high dividend payout can even be a red flag rather than a signal of strength. If a company is consistently returning most of its earnings to shareholders instead of reinvesting in its own growth, it signals one of two things: either the company has limited reinvestment opportunities, or management is not prioritizing long-term value creation.

Why some companies sustain their valuation premium

Institutional investors look beyond just earnings and dividends. They assess whether a company’s competitive position is defensible over time.

A company with strong ROIC today may not maintain it in the future if it lacks a sustainable competitive advantage - a moat that protects its profitability. Companies that successfully sustain their valuation premium typically have something that shields them from competition, whether it’s pricing power, brand strength, cost leadership, or regulatory advantages.

This is where many companies fail to convince investors. Their financials may look good, but investors question whether those numbers are defendable in the long run. Without a clear and well-articulated moat, even strong businesses will struggle to attract long-term investors.

The companies that get it right

A look at some of top-performing stocks reveals a pattern. These companies are not just growing, but growing in ways that reinforce their long-term value creation model.

Their success comes down to a few key factors: they maintain high and stable ROIC, they reinvest in growth areas that preserve or improve returns, they practice capital allocation discipline in word and deed, and they possess a competitive moat that protects their market position.

These companies have significantly outperformed—not because they grew the fastest, but because they grew the right way.

Breaking out of the trap

The key to escaping the low valuation trap is recognizing that investors are not only rewarding growth, but also high returns.

Executives should start by asking the right questions. Are we growing in a way that creates lasting value? Are we deploying capital efficiently, or simply expanding for the sake of it? Do we have a clear strategy for capital allocation, balancing reinvestment, acquisitions, and shareholder returns? And most importantly, can we defend our profitability in a way that protects our competitive position?

Companies that align their strategies with these investor priorities will attract the valuation premiums they seek. Those that continue to focus on growth without regard for its quality will remain frustrated by a stock price that doesn’t reflect their expectations.

Foreign investors stay selective in May as Saudi equities attract modest inflows

May foreign flows show that investors are applying a higher risk premium to GCC equities, but they are not abandoning the region. The GCC recorded net foreign outflows of USD837 million in May, led by selling in the UAE, Kuwait and Qatar. Saudi Arabia was the exception, with modest net inflows of USD53 million.

Despite May’s outflow, GCC equities still recorded USD1.1 billion of net foreign inflows year to date. The MSCI GCC Index fell 1.1% in May to 747 points and is now down 5.7% year to date from 792 points. That is a negative market reaction, but it remains relatively contained given the severity and duration of the current conflict.

Key takeaway for listed companies

Saudi Arabia’s resilience appears to reflect market liquidity, EM index weight and lower perceived energy export risk. The market offers the largest equity opportunity set in the GCC and remains the most important regional allocation for global emerging market investors. Saudi Arabia also has pipeline capacity to export crude to the Red Sea, reducing its dependence on the Strait of Hormuz relative to several GCC peers. That does not remove geopolitical risk, but it helps explain why foreign inflows have remained concentrated in Saudi Arabia.

While a peace deal appears to be making progress, investors are still waiting for proof that the crisis is moving toward a final settlement. The ceasefire has helped limit the market reaction, but the absence of a final deal continues to weigh on foreign flows. Investors will need more than headlines alone before rebuilding exposure.

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Download the full report to explore the detail.

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Investor Relations often finds itself stuck in an identity crisis. Is it a compliance-driven back-office function, similar to accounting, tasked with disclosure and reporting? Or is it a strategic, market-facing role that actively drives shareholder value, placing it alongside front-office activities like sales or corporate strategy? The truth lies in IR’s core objective: to shape how capital markets perceive and value a company.

The question whether IR is a front office or back office function has implications for how companies deploy resources, define priorities, and measure their success. The key lies in recognizing IR’s unique ability to match a company’s performance with the capital market’s perception—an interplay that is central to value creation. Getting it wrong risks diminishing the value that IR can create for the company, its owners, and its management.

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Investor Relations' Misunderstood Role

For many years, IR was seen as a function focused on reacting to market needs—preparing earnings reports, managing disclosure, and arranging annual general meetings. While these activities are important, they do not capture the transformative potential of IR in today’s complex capital markets. This compliance-first approach relegates IR to the sidelines, denying it the resources and authority to shape the company’s investment narrative proactively.

At its core, IR serves as the voice of the company to investors, analysts, and the broader market. This role has evolved substantially, driven by rising investor demands for transparency, the growing influence of ESG factors, increased scrutiny from institutional investors, and the increasing role of AI in the investment process. Modern IR is not merely about disseminating information; it is about shaping the company narrative. This means conveying how performance aligns with market expectations and, in doing so, influencing valuation multiples.

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The Bridge Between Performance and Perception

To understand why IR deserves to be considered a front-office function, it is necessary to break down its role into two pillars: performance and perception. These pillars are not merely distinct areas of focus; they represent the interplay that ultimately determines a company’s valuation in the market.

Performance is the foundation of measurable operational and financial outcomes. Institutional investors look for companies with compelling strategies, disciplined capital allocation, and strong returns above the cost of capital. IR plays a central role in articulating these metrics to investors. For example, it demonstrates how a company is positioned in its industry, where its growth will come from, and how resources are being deployed to create value sustainably. Without IR translating these fundamentals into a cohesive narrative, the market risks undervaluing the company’s achievements.

Perception, on the other hand, is the multiplier effect. While performance builds the foundation, perception determines the valuation premium (or discount) that the market applies to a company. Investors trust companies with credible management teams that deliver on their promises and engage transparently. A mature IR function not only engages proactively with stakeholders but also articulates external expectations inside the companyTogether, these pillars of performance and perception define a company’s market valuation.

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Earnings Equivalent Valuation Premium

Let’s take an example of an airline. The company trades at a P/E ratio of 10.4x, based on net income of USD 1.38 billion, giving it a market capitalization of approximately USD 14 billion. A more mature front office IR function which understands what information investors need, how they come to their valuations, and effectively communicates corporate strategy and capital allocation could potentially generate a valuation premium and improve the airline’s P/E ratio by around 15%, from 10.4x to 12x.

Key insight: IR can provide a far more efficient lever for value creation than operational improvements alone. A 15% improvement in P/E ratio through stronger market perception is equivalent to a 13.9% revenue increase—without adding a single dollar in operations.

The resulting valuation uplift would increase the airline’s market capitalization by USD 2.1 billion, a figure too big to be ignored in discussions of value creation by executives and the board. To achieve this hypothetical USD 2.1 billion uplift through operational improvements alone, the airline would need to grow its net income by USD 215 million. Given the company’s FY2023 net income margin of 25.8%, this would require an additional USD 833 million in FY2023 total revenue – or the equivalent of a 13.9% annual revenue increase. Achieving such growth in a highly competitive industry, where margins are constantly under pressure, would be far from easy.

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This scenario highlights the outsized impact that IR’s ability to improve market perception can have on valuation. While operational performance will always remain the foundation, IR can provide a highly efficient lever for value creation. By positioning IR as a front-office function, companies like the airline example can unlock valuation premia, drive shareholder confidence, and achieve outcomes that would otherwise demand significant - perhaps impossible - operational improvements.

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Designating IR as Front Office

Treating IR as a front-office function changes how the organisation creates value. It gives IR a strategic mandate, closer proximity to leadership and direct accountability for helping management understand and influence valuation outcomes. Companies that fail to recognize this strategic importance are leaving untapped value on the table.

When IR is seen as a strategic partner, its insights on market sentiment, investor expectations, and valuation drivers are not just heard but can proactively influence corporate strategy.

The capital markets reward companies with proactive IR functions. For investors, it signals that the company understands its audience and takes its market-facing responsibilities seriously. Internally, this shift elevates IR’s role, ensuring it is equipped with the resources, tools, and authority to make a meaningful impact on valuation.

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Reimagining IR in Organizational Design

For IR to operate effectively as a front-office function, companies need to embed it more deeply into their organizational design. This means granting IR a seat at the table where strategic decisions are made and making it accountable for delivering insights that drive valuation.

A well-structured IR function should report directly to the CEO or CFO and have representation in executive committee discussions. This proximity allows IR to translate investor expectations into actionable insights for leadership, while also ensuring that corporate decisions are communicated effectively to the market. Regular internal board reporting - covering market sentiment, valuation analysis, and investor engagement metrics – then ensure IR’s contribution is recognized and informs strategic planning.

Next to finance, IR must also integrate with other key functions, such as strategy, business lines, and ESG. As ESG concerns grow, IR’s role in articulating the company’s sustainability narrative becomes critical. This collaboration ensures that the company’s story resonates with the expectations of long-term investors, who increasingly prioritize these non-financial factors.

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The Broader Implications for Companies

Designating IR as a front-office function also changes how companies measure and reward its success. Instead of focusing solely on disclosure accuracy or internal feedback, companies should evaluate IR’s impact on valuation. This better reflects IR’s strategic contribution and aligns with its role as a pillar of shareholder value creation.

The benefits of the shift are obvious. Companies that treat IR as a strategic, market-facing role tend to attract long-term, stable investors and achieve higher valuation premiums. By proactively managing the investment narrative and aligning external with internal expectations, these companies are also better equipped to meet sell-side analyst forecasts and buy-side expectations.