More than anything else, managers determine returns. They set strategy, hire key team members, oversee operations, and cash paychecks. Every move they make either enhances or destroys shareholder capital.
It pays to know who these men and women are, how they're paid, whether they, too, are owners, and how they perform versus competitors in certain key metrics. In this regular column, I'll examine all that and more with the goal of enhancing our understanding of some of the top stocks in Fooldom.
Next up: F5 Networks (Nasdaq: FFIV). Is the executive team of this Internet backbone equipment supplier doing all it can to earn you outsized returns?
Foolish facts
|
Metric |
F5 Networks |
|---|---|
| CAPS stars (out of 5) | *** |
| Total ratings | 700 |
| Percent bulls | 91.3% |
| Percent bears | 8.7% |
| Bullish pitches | 63 out of 74 |
| Highest-rated peers | Digi International, Spirent Communications, Network Engines |
Data current as of Jan. 27.
F5 Networks has a number of products that investors tend to lump into the broad category of cloud-computing gear. But that's not quite right. F5 originally made its fortune selling load balancers, devices that "balance" the traffic coming into and going out of a network. Like good oil for an engine, load balancers keep networks running smoothly.
The company has since broadened its portfolio to include security and hardware for helping speed the delivery of corporate applications inside a network. Given the additions, investors can be forgiven for lumping F5 in with cloud-computing poster children Akamai Technologies (Nasdaq: AKAM) and salesforce.com (NYSE: CRM), both of which sold off in sympathy when F5 recently reported Q4 results that failed to meet analyst expectations. Fools took it as an opportunity.
"I'm voting the technology here, numbers be damned. F5 makes an excellent product and is the clear market leader for load balancing technology. These are everywhere, and our reliance on this technology is growing," wrote All-Star investor nedliug after the earnings miss.
Management overview
|
Executive |
Years |
Cash Compensation |
Shares Owned |
|---|---|---|---|
| John McAdam, CEO and President | 11 | $1,044,260 | 329,044 |
| Andy Reinland, Chief Finance Officer | 6 | Not given | 892 |
| Mark Anderson, Sr. VP of Worldwide Sales | 7 | $523,679 | 558 |
| Jeffrey Christianson, Sr. VP and General Counsel | 5 | $447,767 | 6,219 |
| Edward Eams, Sr. VP of Business Operations | 11 | Not given | 2,937 |
Source: Capital IQ, a division of Standard & Poor's.
Data current as of Jan. 27.
I'm leery of ignoring numbers in the way CAPS member nedliug is. And there's no need to shy away from the numbers when it comes to F5's management team. Two key executives have more than a decade with the company, and the wages are not unfair for this type of executive team. My only regret is that that they don't own more of the business. F5's insiders account for just 0.53% of the shares outstanding.
Management analysis versus competitors
|
Company |
Insider Ownership |
Gross Margin |
ROC* |
ROE** |
|---|---|---|---|---|
| F5 Networks | 0.53% | 81.1% | 17.3% | 18.5% |
| Cisco Systems (Nasdaq: CSCO) | 0.09% | 63.5% | 10.7% | 18.7% |
| Blue Coat Systems | 2.54% | 77.3% | 10.2% | 13.9% |
| Brocade | 0.44% | 58.9% | 4.5% | 6.2% |
| Nortel Networks | 0.09% | 31.8% | 0.7% | NM*** |
| Riverbed Technology | 8.14% | 75.9% | 8.4% | 7.7% |
Source: Capital IQ, a division of Standard & Poor's.
Data current as of Jan. 27.
* Return on capital.
** Return on equity.
*** Not measurable.
This table makes the sell-off look even sillier. F5 leads all its peers in margin and returns on capital, and is within two-tenths of a point of leader Cisco in return on equity. Management is executing at a high enough level that I believe the stock is a buy at current levels. To reflect this, I've rated F5 to outperform in my CAPS portfolio.
Do you agree? Disagree? Let us know what you think about F5 Networks using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.
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