Topic: Growth Stocks

How a growth stock pick’s name can help (or hurt) its prospects

A subscriber to Stock Pickers Digest, our newsletter for aggressive investing, recently asked us how much importance we give to a company’s name when we’re selecting growth stock picks to recommend in our newsletters and investment services. He felt that a poorly thought-out company name may reflect a poorly thought-out business plan and a low chance of success.

He specifically asked about Tucows Inc. (symbol TC on Toronto). We recently updated our buy/sell/hold advice on the company in a Stock Pickers Digest Email Hotline. See below for more details on this growth stock pick’s outlook.

A growth stock pick’s name should be more memorable than descriptive

Corporate names are part of a company’s effort at branding itself. You want your corporate name to stick in your potential customers’ minds, the way a cattle brand sticks on the side of a cow. However, there is much more to branding than coming up with a catchy name.

Apple Computer attracted a lot of attention when it first started selling computers. The name of a fruit was an unusual choice for a tech company. However, an apple is not just any fruit. It has connotations of wholesomeness, simplicity, universal appeal and health — much more so than, say, orange or watermelon.

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Sometimes, a good name for a company is good because it appeals to the market that a company hopes to sell to, but is incomprehensible to everybody else. This makes it something of an in-joke. It creates a community of sorts out of the minority of people who get it.

Tucows: Much more than a catchy name

Tucows started out as an acronym for The Ultimate Collection of Winsock Software. Winsock is a technical term related to a type of Windows software. The growth stock pick’s early target market, computer nerds, would know that.

The company sells Internet domain names, email accounts and other services through the OpenSRS group, which manages over 8 million domain names and millions of email boxes through a reseller network of over 9,000 web hosts and Internet service providers.

Tucows has extended its unique branding to its “YummyNames” subsidiary. This division manages the tens of thousands of domain names that Tucows owns. Most of these generate advertising revenue. YummyNames also sells domain-name consulting services that are designed for marketers. As well, it sells and leases premium domains from the Tucows portfolio.

The company continues to buy back shares. It recently announced that it will buy back 6.3 million of its shares at $0.70 each, for a total of $4.4 million. That’s 9.5% of the total number of outstanding shares. Share buybacks increase the value of the remaining shares.

Companies typically engage in share buybacks when they have excess cash in relation to their debt, or more than enough cash flow to expand.

A company’s name is only one factor in its success

In the end, if a company has a dumb corporate name and a business plan to match, you’ll want to stay far away. But if it has a dumb name and a smart business plan that is already enjoying some success, that combination is something of a hidden asset.

After all, coming up with a winning business plan and putting it into practice is the hard part. If the business is off to a good start, it’s relatively easy to hire a branding consultant who can come up with the right name that enhances the company’s success.

For our latest buy/sell/hold advice on dozens of stocks that would be suitable for the part of your portfolio you devote to aggressive investing, be sure to consult the latest Stock Pickers Digest. Click here to learn how you can get one month free when you subscribe today.

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