How Should Investors Feel About Gulf Resources Inc’s (NASDAQ:GURE) CEO Pay?
Xiaobin Liu took the reins as CEO of Gulf Resources Inc’s (NASDAQ:GURE) and grew market cap to US$67.40M recently. 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 Liu’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. View our latest analysis for Gulf Resources
Did Liu create value?
GURE can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. Most recently, GURE released a profit of US$31.30M , which is a rather significant decline from its prior year’s profit (excluding extraordinary items) of US$37.48M. However, GURE has strived to sustain a strong track record of generating profits, given its average EPS of US$0.71 over the past couple of years. During times of abating earnings, the company may be incurring a period of reinvestment and growth, or it can be a sign of some headwind. Regardless, CEO compensation should represent the current condition of the business. In the latest report, Liu’s total compensation fell by a non-trivial rate of -24.41%, to US$82.09K. Moreover, Liu’s pay is also comprised of non-cash elements, which means that variabilities in GURE’s share price can impact the true level of what the CEO actually collects at the end of the year.
Is GURE’s CEO overpaid relative to the market?
Though no standard benchmark exists, since compensation should account for specific factors of the company and market, we can evaluate a high-level base line to see if GURE is an outlier. This outcome can help direct shareholders to ask the right question about Liu’s incentive alignment. Typically, a US small-cap has a value of $1B, produces earnings of $96M, and remunerates its CEO at roughly $2.7M annually. Taking into account GURE’s size and performance, in terms of market cap and earnings, it seems that Liu is paid less than the average US small-cap CEO.
Next Steps:
CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Liu remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
1. Governance: To find out more about GURE’s governance, look through our infographic report of the company’s board and management.
2. 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.
3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of GURE? 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.
