How we dodged the Unilife trainwreck, and how to spot the next...

How we dodged the Unilife trainwreck, and how to spot the next one

Unilife is down 99% since we named it a Top Short of 2014. Here we explain the three filters that helped us avoid disaster.

06 Apr 2017

Have you ever noticed that when a company pays its executives more than it earns in revenue, it tends to do really well? Me neither.

Management compensation is one of the first things I look at when analysing a stock because it does a great job at showing who the executives are working for; are they managing the company for the benefit of shareholders, or is it just a vehicle to line their own pockets?

In 2015, the combined remuneration of the top executives at Unilife Corporation (ASX: UNS) hit US$13.8m while revenue was a meagre US$13.2m. Alarm bells come in many tones, but this one was crystal clear.

How to tune your radar

A few weeks before our special report, the Intelligent Investor analysts went to Unilife’s annual shareholder meeting. Almost all of us were reaching for the smelling salts before the presentation was over.
The first red flag was overly promotional language – Unilife’s chief executive Alan Shortall used phrases like ‘explosive growth opportunity’ followed by ‘you can’t make this stuff up’ (hint: they always can).
Good managements tend to use matter-of-fact language and don’t sugarcoat bad news or consistently blame it on external factors. Anything else, and it might suggest management is trying to mislead you.
Other things to be wary of include managements talking endlessly about industry trends or the potential market size, rather than the specifics of the company’s strategy or product.

All of it:

https://www.intelligentinvestor.com...ainwreck-and-how-to-spot-the-next-one-1863656