The Worst Companies to Work for May Also be Bad to Invest In
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I like lists. I realize that some are based upon opinions but it is fun to look through some of the more interesting and topical ones.
There is a list that most companies would not want to be on. Using employee survey data captured by the on-line job site Glassdoor.com, 24/7 Wall St. recently tabulated the worst companies to work for in America right now.
Should (and would) you invest in any of these companies?
I applied The Motley Fool philosophy for assessing a business to the worst five on the list. The considerations were:
- Sustainable competitive advantage,
- Amount of free cash flow,
- Management practices,
- Fool CAPS rating (up to five stars with five being the best).
Factors used for assessing competitive advantage include brand recognition (think of the iPhone), product quality and pricing power.
The amount of free cash flow is equal to cash available from operations minus capital invested in the business.
All of the companies on the list have “bad” management practices, at least according to their employees. Are they “bad” from an investor perspective too? I would say that the workers have great insight, probably better than most outsiders, as to how well management performs. Also, poor leadership makes it difficult to keep skilled, high performers that most companies need in order to grow in these challenging economic times.
As quoted in The Motley Fool website, the CAPS rating "captures the collective insights and opinions of tens of thousands of individual investors as well as more than 100 professional Wall Street firms."
The table below summarizes the assessment:
Here are some details:
5. OfficeMax Inc (NYSE: OMX)
OfficeMax has 978 stores across the United States and Mexico and operates in the very competitive office supply business. It is the smallest of the three major players and does nothing to distinguish itself from the other two companies. Would you stop there to buy your pens and pencils? I would say that there is no competitive advantage.
Free cash flow was negative (-$19.4 million) last year. The last time it was positive was 2009. It does pay a dividend. The yield is about 1.45%. But is it sustainable?
The Fool CAPS rating is one out of five stars.
4. Hertz Global Holdings Inc. (NYSE: HTZ)
Hertz possesses a fleet of approximately 355,500 vehicles and like OfficeMax is in a very competitive environment today. There are several other major car rental companies and some smaller ones too. While at the airport would you chose them instead of someone else? It has no major advantage here.
Hertz has had negative free cash flow for the past 5 years (see chart below) and it doesn’t pay a dividend.
The CAPS rating is two out of five stars.
3. Radio Shack Corp. (NYSE: RSH)
Radio Shack competes (poorly) in the retail electronics industry. Although other companies in this area are also not doing well Radio Shack has no competitive advantage.
Free cash flow has been generally declining over the past few years. Please refer to the chart below.
The CAPS rating is one out of five stars.
2. Dillard’s Inc. (NYSE: DDS)
Dillard’s has about 300 stores and competes in the apparel and home furnishing industry against a host of other companies. It operates mostly in Texas and Florida. I don't know of a good Dillard brand. Do you? There doesn't appear to be any sustainable competitive advantage here.
Free cash flow is positive at $375 million but declined in 2010 and 2011. It pays a very small quarterly dividend of $0.05 per share and yields about 0.3%. Its balance sheet is probably the best of the worst five. That's not saying much but charitably we can give Dillard's a passing grade here.
The stock has performed relatively well over the past year:
Employees gave particularly bad grades to CEO Alex Dillard. He had an approval rating of 21% in the survey. Management gets a "F."
The CAPS rating is one out of five stars.
1. DISH Network Corp. (NASDAQ: DISH)
Dish Network has been bleeding subscribers for the last several years and is in competition against companies in the cable, telecommunication and streaming video areas. I would say that it has absolutely no competitive advantage. There are plenty of options to choose from when ordering up channels.
Free cash flow for 2011 was about $900 million but has grown only once in the past 5 years, and it does not pay a dividend. Financials, although not stellar, could be worse. Again, being charitable, we can give Dish a pass here.
However, maintaining those numbers has resulted in an unsatisfied workforce, subjected to working long hours to serve (mostly) unsatisfied customers. Management fails.
The CAPS rating is two out of five stars.
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After looking at the worst of the worst companies to work for, I found no overwhelming reason to invest in them either. In addition to the obvious (a less than ideal work environment) three of the five do not have a good free cash flow position and none of them have a competitive advantage. All score low on the Fool CAPS rating system.
A better choice might be to find a list of the best companies to work for and apply the assessment criteria to them.
Mathman6577 has no positions in the stocks mentioned above. The Motley Fool owns shares of Dillard's, Hertz Global Holdings, and RadioShack. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
