USA Today published an article on August 22, 2007, examining the performance of stocks whose founders were still operating their companies. The paper took stock prices from December 31, 1992, to August 21, 2007, producing results for 63 companies. The founder-led businesses achieved average cumulative returns of 970% against 222% for the S&P 500. That's quite a difference. However, this was two years ago and a lot has happened since. Let's revisit some of these stocks, taking the top and bottom three performers from the 2007 findings to see how they're doing now.
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Top Three Performers




Company


% Return 1993-2007


% Return 2007-2009


Pre-Paid Legal (NYSE:PPD)


4,302%


-22.1%


Dell (Nasdaq:DELL)


3,389%


-50.4%


Oracle (Nasdaq:ORCL)


2,650%


9.2%


S&P 500


222%


-38.1%


Interesting Findings
The companies listed above weren't even the three biggest gainers in the 2007 findings. Apollo Group (Nasdaq:APOL), the Phoenix-based education company, topped the list at 6,340%, but I didn't include it because it began trading on December 6, 1994. The same goes for Amazon.com (Nasdaq:AMZN), which was next on the list at 4,381%. I don't think I need to fill you in on this success story or its founder, Jeff Bezos. In total, 15 companies didn't make my list because of a late start. That certainly doesn't make them bad stocks. In fact, it might make them better because they've had less time to grow.

Can Dell Regain His Magic?
Michael Dell climbed back into the CEO role in February 2007, hoping to kick-start the once dominant PC maker. Its stock is down 12% more than the S&P 500 in the past two years, with no miracle waiting in the wings. Apple (Nasdaq:AAPL), Hewlett-Packard (NYSE:HPQ) and Microsoft (Nasdaq:MSFT) are all taking market share from the Austin company. In my opinion, shareholders should be thankful it's only down 50% given the beating its industry competitors are laying down. As for Pre-Paid Legal, I applaud its founder's vision for the company. Harland Stonecipher got the idea after a car accident in 1969 left him with a large legal bill that no insurance company had thought to provide coverage for. Shortly thereafter, the predecessor to Pre-Paid Legal was born and the rest is history. While it's had its detractors (those against direct selling), you can't deny it's a cash cow. In the first quarter, despite revenues dropping 2.7%, cash from operations increased 42% to $29.7 million. That's how you increase the stock price. Lastly, Oracle actually managed to gain ground since 2007, although I wonder if 9.2% is enough to justify CEO Larry Ellison's $944 million pay package in 2008. (Learn more about executive pay in Evaluating Executive Compensation.)

Bottom Three Performers




Company


% Return 1993-2007


% Return 2007-2009


Dillard\'s (NYSE:DDS)


-52%


-62.4%


Vicor (Nasdaq:VICR)


33%


-43.5%


Regeneron Pharma (Nasdaq:REGN)


53%


-7.3%


S&P 500


222%


-38.1%



Predictable Results
In my opinion, if you are the CEO of a company for a 17-year period and can't beat the S&P 500, you should step aside - especially if you are the founder. What's the point of being a public company if you're not profiting from an appreciating stock? That's why I think William Dillard of Dillard's Inc. must go. Losing to the index by 300% over a decade-and-a-half is an outright embarrassment. Dillard and family should do the right thing and bring in a competent CEO before it's too late.

I'll be the first to admit I knew little about Vicor Corporation before it showed up on my list but apparently, it has something to do with manufacturing power conversion components. What I do know is that it's had nothing but analyst downgrades (six, if I'm not mistaken) since 2005 and that can't be a coincidence.

Finally, we have Regeneron Pharmaceuticals. It develops drugs to treat serious medical conditions. Who couldn't support this kind of business? However, it hasn't made money in nine out of the last 10 years! Despite this fact, its stock has done all right for itself. Who knows, maybe the company will hit the jackpot and find a cure for cancer. That would be nice. (For more on analyst expectations, be sure to read Analyst Recommendations: Do Sell Ratings Exist?)


Bottom Line
I'm a big believer in founder-led businesses. With the exception of Dilliard's, the USA Today article tells me that I have every reason to trust these companies. And so should you.







Filed Under:
Tickers in this Article: PPD, DELL, ORCL, APOL, AMZN, AAPL, HPQ, DDS, VICR, REGN

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