Yahoo Finance How Should Investors Feel About Applied Materials Inc’s (NASDAQ:AMAT) CEO Pay?
Gary Dickerson took the helm as Applied Materials Inc’s (NASDAQ:AMAT) CEO and grew market cap to US$52.71B 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. Today we will assess Dickerson’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. Check out our latest analysis for Applied Materials
What has AMAT’s performance been like?
AMAT 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. Over the last year AMAT delivered a profit of US$3.17B , which is an increase of 20.28% from its previous year’s earnings of US$2.64B. This is an encouraging signal that AMAT aims to sustain a strong track record of generating profits regardless of the challenges. As profits are moving up and up, CEO pay should mirror Dickerson’s valued-adding activities. In the same year, Dickerson’s total compensation fell by a meaningful rate of -22.13%, to US$15.32M.
Is AMAT’s CEO overpaid relative to the market?
Though there is no cookie-cutter approach, since compensation should be tailored to the specific company and market, we can evaluate a high-level thresold to see if AMAT deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Dickerson’s incentive alignment. Typically, a US large-cap has a value of $64.9B, generates earnings of $3.6B and pays its CEO at roughly $12.2M per year. Based on the size of AMAT in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Dickerson is compensated similar to other US CEOs of large-caps, on average. This may mean that AMAT is appropriately compensating its CEO.
Next Steps:
In order to determine whether or not you should invest in AMAT, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how AMAT makes money, and factors impacting your return on investment. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
Governance: To find out more about AMAT’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 AMAT? 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.
