The Manufacturing Recession

Plus some stocks I'm watching this week

Hey there, it’s nice to be back home after some time away in Asia. I’ve been getting back into the groove of the US & European markets so expect A LOT more stock related content coming your way 😎

Last night I recorded a quick video discussing the ugly manufacturing data we got earlier this week in the US, as well as some stocks that are catching my attention this week that may deserve some further study:

Now one thing that didn’t make the video, which I noticed AFTER recording it, was a new SEC filing from Stitch Fix ($SFIX) indicating that their Board just approved a massive new stock grant to company insiders. For the 2ND year in a row, the company is allocating 5% of total outstanding shares for future stock grants to execs & employees. In my opinion, this is TOTALLY EGREGIOUS 😡.

Further, there’s no end in sight to this behavior since Stitch Fix’s 2017 comp plan has this batshit INSANE evergreen provision which allows a 5% stock grant allocation EACH YEAR through 2027.

That level of stock grants year after year brings insane and unnecessary dilution to public shareholders of this company. If they continue this behavior each year, existing shareholders may end up with 50% LESS ownership of the company by 2027. Mathematically, this makes it very difficult for $SFIX to deliver consistent robust shareholder returns with that kind of headwind from share creep. Even if the stock price stays flat, market cap grows and grows because of the addition of all these new shares.

I had to call out Bill Gurley, a VC who I otherwise admire, on Twitter because lately he’s been on a crusade calling out bankers who under-price tech IPOs, which causes a little more dilution to existing shareholders than necessary. YET here Bill sits on the Stitch Fix Board of Directors, allowing these unconscionable MASSIVE dilutive share grants. Talk about hypocrisy!

I also make the point here that there’s already a TON of existing options and shares (over 20 million on an existing share count of about 101 million, worth $300+ million at today’s prices) available to incentivize employees and executives at this company. The Board and management team CANNOT argue that they need these excessive ongoing grants to keep employees engaged in their jobs.

This is the kind of thing that you NEVER see from companies that compound value for their shareholders year in and year out. The 10-baggers and 100-baggers that create massive wealth over time, the companies with owner-managers who become legends in the market. But this is certainly the kind of thing that keeps me from buying a stock that I otherwise might be buying.

Anyway, for now I’ll end my rant on excessive stock grants 😂 Luckily for all of us there’s a lot more companies out there in the market who don’t exhibit this behavior!

Cheers,

T