There are many relevant things to consider when making investment decisions: competitive strengths, growth opportunities and profitability are just a few noteworthy examples. But when having to choose one factor above all others, that would be the quality of the management team.
One factor to rule them all
Things like competitive strengths and growth opportunities don´t come out of thin air, they are created and nurtured by the right management team over time. A skilful management team with deep understanding about the indystry and its success drivers can be crucial in terms of creating value for shareholders in the long term.
Starbucks (NASDAQ: SBUX ) would be a very different company without Howard Shultz. In fact, from 2000 to 2008 Shultz stayed away from his CEO position, and the company went through a very challenging phase. Starbucks was over expanding back them, the brand was losing luster and the customer experience was being watered down.
When Shultz came back as a CEO, he redesigned the stores to recapture the coffeehouse feel, he closed 600 underperforming locations and refocused the company on quality and innovation. Fortunately for investors, Starbucks has been growing without pause over the last years, expanding internationally and adding new products to its offerings.
Financial performance is once again steaming hot with earnings per share growing by 28% in the last quarter on the back of a 13% increase in revenue, and the stock is trading near historical highs. Shultz's role in rebuilding the company´s competitive differentiation cannot be overstated, and investors in Starbucks have good reasons to feel comforted on the fact that he is pulling the rows.
Avoiding a crash
Unlike its American competitors, Ford (NYSE: F ) didn´t require any TARP money to go through the 2008-2009 financial crisis. Alan Mulally became the company´s CEO in September 2006 and he started a comprehensive restructuring process which has produced enormous benefits for the company and its shareholders since them.
Under Mulally´s leadership the company had to make some tough decisions like mortgaging its assets to access $18 billion in liquidity and selling brands like Jaguar and Volvo, but those efforts paid-off, and Ford emerged from the crisis a much stronger company.
Ford has dramatically improved its portfolio of products with models like the widely acclaimed Ford Fusion and the company is now in a much healthier financial and competitive position. The company has retained its traditional leadership in light trucks, and it's also gaining market share versus Japanese competitors in smaller vehicles.
Ford has made an impressive U turn over the last years, and having strong hands at the wheel has made all the difference in the world for investors.
Vision and growth
When it comes to disruptive growth companies with innovative business models, a visionary leader can be crucial. You need someone who can visualize the future and plan for the long term, and you have to convince investors, employees and business partners before you can even get a chance at trying to convince customers about the viability of the product.
Elon Musk is absolutely vital in terms of evaluating Tesla (NASDAQ: TSLA ) and its chances to succeed. Musk has made remarkable inroads in areas like digital payments, solar energy, and space travel among others. When a company like Tesla is trying to revolutionize the automotive industry, having one of the most visionary entrepreneurs in the world on board is clearly a valuable asset.
The Model S has received numerous awards and recognitions, demand is exceeding expectations and Tesla is already a profitable company. The stock is looking quite overcharged after rising more than 485% in the last year, but there is little doubt on the fact that the company has been moving in the right direction at full speed lately.
Jeff Bezos has made Amazon (NASDAQ: AMZN ) the most disruptive force in the retail industry. The company charges aggressively low prices in order to gain market share versus the competition, even if that means operating with razor-thin profit margins.
In addition to that, Amazon is investing heavily in areas like building its warehouses, digital content, and cloud computing services. This is another factor weighing on current profit margins, but creating huge growth opportunities for the company in the long term. Profitability is scarce at Amazon, but long-term growth potential is nothing short of amazing as the company continues consolidating its competitive position.
Amazon has compounded sales at an annual growth rate of more than 30% over the last ten years and investors continue believing in Amazon and its CEO, pressing the buy button as the stock is trading near historical highs in spite of falling profit margins.
Competitive advantages, growth opportunities and many other factors can be important drivers of investor's returns. But one thing comes above all others: the quality of the management team. When you are investing in the right management, there is a good chance you are investing in the right company.
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