Why Did Home Depot Stock Stay Flat Under Nardelli?
David Rosenthal says Home Depot's stock stayed flat under Nardelli even though revenue and profits doubled, because the gains came mostly from doubling the store count while same-store sales stayed flat.
Same-store sales had already flattened before Nardelli arrived and stayed flat through his tenure. Wall Street treated the gap with Lowe's as a red flag. Lowe's kept growing same-store sales by taking the weekend sprucers. During the tenure he authorized $20 billion in share buybacks and dividends, and the stock price still did not move. Institutional investors running discounted cash flow models did not see the present value of future profits growing. Home Depot buying its own stock without lifting the price read as a business whose value was flat, and even shrinking. In the same period, as the U.S. housing bubble reached its peak, Lowe's stock rose 200%.
Nardelli refused to tie his pay to the stock price, calling the stock the one measure of company performance he could not control. Businessweek reported the stance as uncommon for major chief executives then and since. Associates still holding equity had counted on a simple promise: good work, visible results, a rising stock, and personal wealth. The former GE chief executive was going to get rich whether the stock rose or not. Then the stock stopped rising.
