Post Scriptum
January 5th, 2007
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.
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4 Comments Add your own
1. Jason | January 6th, 2007 at 8:05 pm
I agree whole-heartedly. While part of a CEO’s job is to to return value to the shareholder, it is not his responsibility to make sure shareholders value the paper that the company trades on. In the short term, the stock market behaves like a voting machine, but in the long term it acts like a weighing machine. (ala Graham)
2. Jack Carter | January 8th, 2007 at 8:30 pm
Look at the dissatisfaction with HD stores in the past two years, that is the fault of the CEO he was the one who used part time help and turned let folks go who knew home repair and “how to do it”.
Stock price may reflect the poor showing of the stores.
3. Ian le Nobel | January 9th, 2007 at 9:04 pm
Jack, at the risk of sounding argumentative, I just have to ask, if the following CAGR over the last 5 years are bad, what do you consider good?
Revenue – 16%
Cash Flow – 21%
Earnings – 20.5%
Dividends – 25.5%
Book Value – 18.5%
I think it is pretty clear, to me anyway, that Bob got the boot because Ralph Whitworth and his merry bunch of shakedown artists at Relational Investors made it so.
4. Vitaliy | January 29th, 2007 at 3:36 am
I agree with Ian, HD had a great operational peformance under Bob.
Thank you all, Vitaliy
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