Good companies outperform in the stock market
We originally assigned Good Company Index grades to Fortune 100 companies in June 2010 (those grades were reported as the 2011 Good Company Index, reflecting the year in which our book was published). As we did last year on the one-year anniversary of the Index, this year we again examined all “industry-matched pairs” (two companies in the same industry) in the Fortune 100 in which the companies’ Good Company grades differed by one or more full grade levels (for example, a grade of B versus a grade of C).
Those companies with higher Good Company grades significantly outperformed their competitors in the first year and then further extended that outperformance in the second year. The stock price of the company with the higher grade outperformed that of its competitor with the lower grade by an average of 30.2 percentage points cumulatively over the 2-year period (see figure below).
In addition, we found that in 83 percent of the pairs (10 of 12), the higher-ranked company outperformed the other over the 24-month period. For example, the stock value of Verizon (grade of C+ in June 2010) outperformed AT&T (grade of D+) by 21.7 percentage points during that period, 76.5 percent to 54.8 percent.