Since I (unintentionally) became a member of Defend Bob Nardelli Club, I’ve received many emails telling me that Bob Nardelli didn’t do a great job managing Home Depot (HD). Most criticism is centered around Nardelli switching to using more part time labor which led to less knowledgeable employees, the less than sparkling store appearance and the view that the inventory management system being used is inferior to Lowes (LOW).
Let’s say all these points are accurate and there is a dichotomy between the on-the-surface and under-the-surface operational performances. But suppose Nardelli lost his job not because he didn’t manage the company well, but simply because the stock didn’t go anywhere during his tenure. One can argue that if the company was run by a better CEO, HD would command a higher P/E multiple. But take a look at Lowe’s, it is supposedly a much better run company, but it trades at similar P/E.
Milton Friedman said, “the stock market and economy are two different things.” I say the stock and an underlying company are two different things too.