FR: Make Money Along With This CEO

Article: Make Money Along With This CEO

The first “Fool Revisited” piece today was yet another article written about Under Armour (NYSE: UAA). It is pretty obvious from some of my first articles that I wrote for the Fool that I had an affinity for the company, and this was a further expansion of that with a discussion on CEO Kevin Plank’s compensation received for shepherding the company through a period of seemingly never-ending growth.

This was an attempt to expand on the idea of qualitative investing versus quantitative investing. While it is important to point to whatever metrics make sense to you as you are choosing a company, numbers often don’t tell the whole story. A company – like Under Armour and thousands of others – can be doing exceptionally well, and sometimes the numbers are just hard to put into context all things considered, so it can be important to take a step back from time to time to examine the entire picture.

Granted, this article was written long before Plank consolidated his power at Under Armour with a stock split that created a second class of stock without voting rights. But the principle outlined in the article still apply. Plank, as a large shareholder and CEO, had nearly 100% of his compensation tied into performance incentives, instead of simply being paid a large amount of base compensation (as stated in my article, his base compensation was $26,000, which is $1,000 per biweekly pay period).

Other CEOs in the industry also incentive stock performance, but not at the same level as Under Armour. As the company’s stock went up, Plank’s personal wealth did as well. He had incentive to try and steward the company in a way that grew his bottom line. During this period of massive growth for the company, Plank was able to “cash in” with regularly scheduled stock sales while still maintaining his large ownership stake. This was further enhanced by the aforementioned stock split back in 2016.

All that being said, the early performance of Under Armour shares has not been nearly as robust for Plank and other shareholders, with the company lagging behind the S&P 500 by a fairly significant margin (from November 8, 2011 through March 2, 2018) :

Stock Start Price End Price CAGR Total Growth Value of $10,000
Under Armour $10.54 $17.02 7.88% 61.48% $16,148
S&P 500 $1,275.92 $2,691.25 12.54% 110.93% $21,093

Source: Yahoo! Finance & author calculation; Stock prices include dividends & stock splits

Was this a result of the stock split and all the negatives around it? Or was it just the company’s extremely lofty valuations finally catching up with them? It’s probably a combination of both. Nevertheless, any investor that has stuck it out over the past 6+ years would still be better off had they held onto the right class of stock after the split (the Class C shares (NYSE: UA) have lost nearly 63% of their value since the split in April 2016). Nevertheless, the “market” is the winner in this competition, so it’s still hard for me to recommend shares in Under Armour at this time, though I will be keeping an eye on it, just like I did when I seemingly wrote about the company every four weeks back in 2011-2013.

Until next time…

Disclaimer: I do not own currently own shares in any of the mentioned companies, and I have no plans to purchase shares of any company within the next 60 days in any account in which I manage investment funds. You can read a little about my personal investment philosophy here.

One thought on “FR: Make Money Along With This CEO

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s