In the past three years, the share price of RF Industries, Ltd. (NASDAQ:RFIL) has struggled to grow and now shareholders are sitting on a loss. Despite positive EPS growth in the past few years, the share price hasn't tracked the fundamental performance of the company. Shareholders may want to question the board on the future direction of the company at the upcoming AGM on 08 September 2021. They could also try to influence management and firm direction through voting on resolutions such as executive remuneration and other company matters. Here's our take on why we think shareholders may want to be cautious of approving a raise for the CEO at the moment.
Comparing RF Industries, Ltd.'s CEO Compensation With the industry
According to our data, RF Industries, Ltd. has a market capitalization of US$84m, and paid its CEO total annual compensation worth US$741k over the year to October 2020. Notably, that's an increase of 50% over the year before. Notably, the salary which is US$400.0k, represents a considerable chunk of the total compensation being paid.
On comparing similar-sized companies in the industry with market capitalizations below US$200m, we found that the median total CEO compensation was US$436k. Hence, we can conclude that Rob Dawson is remunerated higher than the industry median. What's more, Rob Dawson holds US$751k worth of shares in the company in their own name.
Talking in terms of the industry, salary represented approximately 29% of total compensation out of all the companies we analyzed, while other remuneration made up 71% of the pie. RF Industries pays out 54% of remuneration in the form of a salary, significantly higher than the industry average. If salary is the major component in total compensation, it suggests that the CEO receives a higher fixed proportion of the total compensation, regardless of performance.
A Look at RF Industries, Ltd.'s Growth Numbers
RF Industries, Ltd. has seen its earnings per share (EPS) increase by 2.1% a year over the past three years. It saw its revenue drop 23% over the last year.
We would argue that the lack of revenue growth in the last year is less than ideal, but the modest improvement in EPS is good. It's hard to reach a conclusion about business performance right now. This may be one to watch. Historical performance can sometimes be a good indicator on what's coming up next but if you want to peer into the company's future you might be interested in this free visualization of analyst forecasts.
Has RF Industries, Ltd. Been A Good Investment?
With a three year total loss of 20% for the shareholders, RF Industries, Ltd. would certainly have some dissatisfied shareholders. This suggests it would be unwise for the company to pay the CEO too generously.
Despite the growth in its earnings, the share price decline in the past three years is certainly concerning. The fact that the stock price hasn't grown along with earnings may indicate that other issues may be affecting that stock. If there are some unknown variables that are influencing the stock's price, surely shareholders would have some concerns. The upcoming AGM will be a chance for shareholders to question the board on key matters, such as CEO remuneration or any other issues they might have and revisit their investment thesis with regards to the company.
CEO pay is simply one of the many factors that need to be considered while examining business performance. That's why we did our research, and identified 4 warning signs for RF Industries (of which 2 are concerning!) that you should know about in order to have a holistic understanding of the stock.
Important note: RF Industries is an exciting stock, but we understand investors may be looking for an unencumbered balance sheet and blockbuster returns. You might find something better in this list of interesting companies with high ROE and low debt.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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