The "Best Companies to Work For" Are Also Great Investments
Adem is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One of the oldest adages on Wall Street is: "the stock market cares about tomorrow, not today." So it's a bit surprising that, when it comes to choosing good stocks, investors usually turn to numbers. Metrics, like valuation ratios and growth rates, might tell you if a company is cheap or if it's growing, but they won't tell you what it's going to do next.
If you've owned a business you know that finding and keeping good people is the most challenging task. Talent matters, businesses with great talent beat out ones without it. That's precisely why I'd argue that Fortune's annual list of the "100 Best Companies to Work For" is as important an investing tool as a P/E ratio.
I'm serious. I mean, have you ever met someone who's worked for Google (NASDAQ: GOOG)?
When work is your vacation
Could anyone but Google be number one on this list? Google is such a great place to work it even has a movie (The Internship) coming out this summer that pokes fun at its luxurious work place. The company has such awesome working conditions that its been mentioned they've been the subject of an entire 20-20 episode. Yes Google employees play Ping-Pong, take naps, and get massages when they're not dominating the world of technology.
But it's not all play. The truth is that Google's management team has made a concerted effort to attract top talent, as a competitive advantage, much to the chagrin of short-sighted analysts. In April of 2011 Google’s stock dropped below $520 -- as the Street fretted over Co-Founder Larry Page’s return, as CEO. The biggest concern was Page’s commitment to invest (spend) money on top talent. Very few analysts predicted the stock would be at all-time highs today, trading in excess of $900, and it didn't get here by accident. Google is very smart; Google realizes that when their workplace appears to be "a dream," the Dreamers and Innovators will apply.
So now that the company is firing on all cylinders with record earnings, and even making YouTube profitable, the Street finally sees the value of long-term investments. The talent matters, and for some companies it matters more than anything else.
Google is firing on all cylinders and still puts recruiting the best and brightest as item number one on their business plan. No wonder they're doing so well, the nations top talent should be making breakthroughs at Google for years to come.
Overvalued to everyone, except its employees
Nearly every pundit in the financial media has called Salesforce.com (NYSE: CRM) overvalued at this point. I can't argue with that, by the numbers (with a forward P/E of 74 and PEG around 3.2) it is very overvalued.
But is a company just a collection of numbers?
Take Yahoo! for instance. With a P/E ratio of just 7, and a PEG around 1.3, it seems like a no-brainer investment. The problem is, all companies (especially tech) rely on having the best and brightest innovators working for them. Salesforce.com has vastly outperformed "old tech" companies by being a trendy, fun place to work. It's also number 19 on Fortunes list, while Yahoo! and most mature tech companies aren't on it.
As you can see in this video from CRM's recruitment site, the job sounds like a dream come true for a gifted IT professional. Salesforce touts their ability to "function like a start-up and skip the suits," their whole vibe has a certain counter culture to it; which isn't a bad brand when you're recruiting highly educated folks in California.
Further, Salesforce.com makes a point to tell applicants "we expect you to get your code in on time, but where and how it's done is up to you." In other words, they're offering the kind of work from home environment that Yahoo! CEO Marissa Mayer has banned at her company. While it makes good headlines, and Mayer seems very bright, I have to question that strategy. Computer programmers have an unemployment rate far below the national average (4%) and the truly great IT Executives are nearly impossible to find.
It's not that these Professionals care so much about having the flexibility to "play Ping-Pong and work from home," it's that they feel that Executives like Mayer who value "sitting in an office" don't understand what they do. To them, it's about hitting a deadline, and having the trust from their employer to do so.
Being seen as "stodgy" or "old" is what Mayer really risks with this policy, which could be more harmful than having a high P/E ratio. Only time will tell how this all works out, but for now I can't tell you that Yahoo! is cheaper than Salesforce.com. I don't care about todays P/E, not with tech; what matters is who will be working at each firm tomorrow.
Why the Best Places to Work, make the best investments
Fellow Fools, if we ran a business together on "Main St." we would agree on one simple truth: a Company will go as far as its Employees take it. That's common sense, and it's actually what smart Executives on Wall St. think too.
So why does this simple logic elude us when ticker symbols are involved?
For some reason, we tend to think of a P/E ratio as a much better tool to value a business than a list of the "Best Places to Work." Perhaps this list isn't comprehensive enough, but I'd argue that we should all be evaluating how the companies we own find and keep top talent--especially tech companies.
If you're an investor you're an owner, it's that simple. You ought to know who is minding the store.
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Adem Tahiri owns shares of Google. The Motley Fool recommends Google and Salesforce.com. The Motley Fool owns shares of Google. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!