For Sahm Adrangi, predicting failing businesses is a not a new concept to him. The Chief Executive Officer of the private investment firm Kerrisdale Capital has made quite a name for himself by short-selling companies that were on the verge of collapse. This has managed to make the savvy investor a lot of money over the course of his career. When Sahm Adrangi shorted a number of countries that were trading in the United States but based in China, he gained a lot of attention throughout the investment world. Despite his young age, he managed to research and bring to attention companies that were defrauding their customers and their investors.
One of his latest short-selling endeavors is the land developing company known as St. Joe. Located in Florida, they have been making plans to develop a large, swampy area located in the central area of the state. These plans have been around since at least a decade ago and there has been little way in development since then. Sahm Adrangi does not believe that their plans to turn a tract of desolate swampland into a thriving community built around retirees is ever going to happen as they are saying it is.
Their investors have been waiting for a return for years and Sahm Adrangi does not believe it is ever going to happen. While the St. Joe Company has been pushing back deadline after deadline, not much has happened in the way of filing permits. St. Joe has a current valuation of just around a billion dollars. Sahm Adrangi does not believe that this is anywhere near accurate because to achieve these numbers they would have to sales records for the next fifty years that were higher than the rest of the country. It just does not appear that St. Joe’s planned community will ever reach the potential that investors were told that it had.
With SEC compliance evaluations coming up it really does not look good for their investors. One of their largest shareholders is most likely going to be forced to sell half of their shares of St. Joe’s.
In as much as the bottom line for having a company is to make profit, having a sustainable corporate environment is equally important. Stake holders of every business feel more at ease knowing that the company they have invested in is stable and will be able to make them profit years to come. For this to be attained there has to be a balance between the company’s long term goals and short term goals. Most long term goals include the company buying assets and investing in other companies. This ensures that it is able to stand even if the markets are not doing so well. Most short term goals are incentive based. That is, if the company does well, then the investors and the employees stand to gain. Learn more: https://www.crunchbase.com/person/jeremy-goldstein#/entity
The beauty of having incentive based payment structures is that the company’s EPS, earning per share, goes up. The EPS is the determining factor when it comes to investors either buying a particular company’s shares or selling. Therefore, by having an attractive EPS, more people invest in the company. It also enables the company to give its employees very good incentives. Because of the benefits that come with having EPS as a payment structure, many companies over emphasise on it and give little attention to their long term goals. Some CEOs have also tried skewing financial results to have favourable EPS presented to investors.
Financial experts who oppose EPS say that the disadvantage it presents outweighs the advantages it has. Since incentive based financial structures give no room for the investors to judge whether the company is making profit or not, the executives have too much power in this. Only the CEO can say whether they are making profit or not thus giving a lot of room for alterations. Since EPS is based on the market prices, it is too unstable; it changes with the market condition.
Jeremy Goldstein, partner at Jeremy L. Goldstein & Associates, LLC, says the best way forward is not to do away with EPS despite its disadvantages. The best way forward is to find a middle ground between the two. Companies should give equal attention to both their short term and long term goals. This will see them make profit as well as have a sustainable corporate environment. To ensure that the EPS presented in the market is accurate, companies can come up with policies that will help keep the executives accountable to other shareholders.
Jeremy Goldstein is the founding partner at partner at Jeremy L. Goldstein & Associates, LLC. He has been involved in some of the largest corporate transactions including the acquisition of Goodrich by United Technologies and the Dow Chemical Company/Rohm and Haas Company. He has been around long enough to know where most corporate problems begin and how they end in court.