Leading iFresh Inc (NASDAQ:IFMK) as the CEO, Long Deng took the company to a valuation of US$98.83M. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down Deng’s pay and compare this to the company’s performance over the same period, as well as measure it against other US CEOs leading companies of similar size and profitability. See our latest analysis for iFresh
What has been the trend in IFMK’s earnings?
Earnings is a powerful indication of IFMK’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Deng’s performance in the past year. Recently, IFMK delivered negative earnings of -US$18.65K , compared to the previous year’s positive earnings. Furthermore, IFMK hasn’t always been loss-making, with an average EPS of US$0.12 over the past five years. In the situation of unprofitability the company may be incurring a period of reinvestment and growth, or it can be a sign of some headwind. In any event, CEO compensation should mirror the current state of the business. In the latest financial statments, Deng’s total remuneration declined by a substantial rate of -32.82%, to US$717.17K.
What’s a reasonable CEO compensation?
Despite the fact that there is no cookie-cutter approach, as compensation should account for specific factors of the company and market, we can estimate a high-level thresold to see if IFMK deviates substantially from its peers. This exercise can help shareholders ask the right question about Deng’s incentive alignment. On average, a US small-cap has a value of $1B, generates earnings of $96M, and remunerates its CEO at roughly $2.7M per annum. Usually I would use earnings and market cap to account for variations in performance, however, IFMK’s negative earnings lower the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Deng is paid aptly compared to those in similar-sized companies. Putting everything together, even though IFMK is unprofitable, it seems like the CEO’s pay is fair.
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in IFMK, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Governance: To find out more about IFMK’s governance, look through our infographic report of the company’s board and management.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of IFMK? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.