One of the oldest adages on Wall Street is: “the stock market cares about tomorrow, not today.” So it’s a bit surprising that, when it comes to choosing good stocks, investors usually turn to numbers. Metrics, like valuation ratios and growth rates, might tell you if a company is cheap or if it’s growing, but they won’t tell you what it’s going to do next.
If you’ve owned a business you know that finding and keeping good people is the most challenging task. Talent matters, businesses with great talent beat out ones without it. That’s precisely why I’d argue that Fortune’s annual list of the “100 Best Companies to Work For” is as important an investing tool as a P/E ratio.
I’m serious. I mean, have you ever met someone who’s worked for Google Inc (NASDAQ:GOOG)?
When work is your vacation
Could anyone but Google be number one on this list? Google Inc (NASDAQ:GOOG) is such a great place to work it even has a movie (The Internship) coming out this summer that pokes fun at its luxurious work place. The company has such awesome working conditions that its been mentioned they’ve been the subject of an entire 20-20 episode. Yes Google Inc (NASDAQ:GOOG) employees play Ping-Pong, take naps, and get massages when they’re not dominating the world of technology.
But it’s not all play. The truth is that Google Inc (NASDAQ:GOOG)’s management team has made a concerted effort to attract top talent, as a competitive advantage, much to the chagrin of short-sighted analysts. In April of 2011 Google Inc (NASDAQ:GOOG)’s stock dropped below $520 — as the Street fretted over Co-Founder Larry Page’s return, as CEO. The biggest concern was Page’s commitment to invest (spend) money on top talent. Very few analysts predicted the stock would be at all-time highs today, trading in excess of $900, and it didn’t get here by accident. Google Inc (NASDAQ:GOOG) is very smart; Google realizes that when their workplace appears to be “a dream,” the Dreamers and Innovators will apply.
So now that the company is firing on all cylinders with record earnings, and even making YouTube profitable, the Street finally sees the value of long-term investments. The talent matters, and for some companies it matters more than anything else.
Google is firing on all cylinders and still puts recruiting the best and brightest as item number one on their business plan. No wonder they’re doing so well, the nations top talent should be making breakthroughs at Google Inc (NASDAQ:GOOG) for years to come.
Overvalued to everyone, except its employees
Nearly every pundit in the financial media has called salesforce.com, inc. (NYSE:CRM) overvalued at this point. I can’t argue with that, by the numbers (with a forward P/E of 74 and PEG around 3.2) it is very overvalued.
But is a company just a collection of numbers?
Take Yahoo! Inc. (NASDAQ:YHOO) for instance. With a P/E ratio of just 7, and a PEG around 1.3, it seems like a no-brainer investment. The problem is, all companies (especially tech) rely on having the best and brightest innovators working for them. salesforce.com, inc. (NYSE:CRM) has vastly outperformed “old tech” companies by being a trendy, fun place to work. It’s also number 19 on Fortunes list, while Yahoo! and most mature tech companies aren’t on it.
As you can see in this video from salesforce.com, inc. (NYSE:CRM)’s recruitment site, the job sounds like a dream come true for a gifted IT professional. salesforce.com, inc. (NYSE:CRM) touts their ability to “function like a start-up and skip the suits,” their whole vibe has a certain counter culture to it; which isn’t a bad brand when you’re recruiting highly educated folks in California.