Often we hear Wall Street analysts talk about “fundamental” analysis. Unlike the way in which that term has been defined in the past, in today’s markets it has become synonymous with company level financial analysis. This process by its very nature is a "downstream" view, or lagging indicator of a company’s ability to create future cash flow.

Our analysis looks at something much more...fundamental if you will - a company’s ability to create authentic, engaging, long-term and emotional relationships with customers - and management's consistent ability to do so in an economically profitable manner. We believe this is an “upstream” cue or leading indicator of sustainable cash flow creation. Managing the customer portfolio has always been a fundamental component of any company’s ability to create future cash flow.

Now, as Roger Martin, Dean of the Rotman School of Management at the University of Toronto points out in his 2010 HBR article, The Age of Customer Capitalism, we are experiencing a dramatic shift of power in the marketplace from seller to buyer. Social media is accelerating this shift. As companies recognize this and look for ways to continually build and deepen the customer relationship, social media is also supercharging the efforts of the most customer centric organizations. Allowing the best to get even better. This added transparency also creates an important listening post investors can use to peer into the conversations and uncover those companies that excel at creating authentic customer engagement.

The Customer Value Index (CVI) is based on the notion that companies best positioned to outperform in today’s turbulent markets are those that create exceptional value for customers by operating with a sense of authenticity, transparency, empathy and societal purpose. They are developing “Social Capital”, creating more emotional, less transactional relationships and increasing the annuity value of their customer asset.

We believe those companies best able to exploit this reality will see an explosion of, and an increased connection between, social capital, competitive performance and stock price performance. Social media-fueled customer engagement is changing the underlying risk and growth profiles of companies and accelerating the value creation and erosion process. As a result, investors need to start looking beyond traditional quantitative analytical and valuation metrics and include more qualitative cues to a company’s ability to create future cash flow.