Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.
KEYPOINTS
🔑 Understanding a company's workforce trends can reveal hidden risks and opportunities for your portfolio.
🔑 Ruthless layoffs, especially at companies with weak fundamentals and poor culture, can signal trouble ahead for future growth.
🔑 Pay attention to how a company treats its employees. A strong company culture and workforce engagement can be indicators of long-term success.
Building a winning stock portfolio goes beyond just price charts and company names. Today, we'll delve into a crucial factor often overlooked: employee trends. Specifically, we'll explore why layoffs, especially ruthless ones, can be a red flag for a company's future growth potential.
Why layoffs matter:
Imagine a company facing challenges, but with strong underlying fundamentals (think financials) and a positive company culture (think happy, engaged employees). Even during layoffs, the impact might be minimal.
However, the red flags start waving when layoffs coincide with weak fundamentals and a poor company culture (as evidenced by low Glassdoor ratings). Here's why:
Talent drain: Layoffs, particularly brutal ones, make it difficult to retain top talent. Who wants to stay at a company where job security seems shaky?
Knowledge gaps: Losing experienced employees creates knowledge gaps. New hires take time to adjust, hindering progress, especially in technical fields like engineering.
Morale plummets: Fear of job cuts can severely impact existing employees' morale, leading to decreased productivity and innovation.
This becomes particularly concerning in innovative industries where cutting-edge skills are vital. Take Tesla's recent layoffs as a case study.
Tesla's Exodus:
Tesla, known for pushing boundaries in electric vehicles (EVs) and artificial intelligence (AI), relies heavily on talented engineers. Yet, they implemented significant layoffs. This triggered an exodus of key personnel, including:
Executive departures: Vice Presidents, Senior VPs, and long-time employees left, potentially due to concerns about Tesla's future or dissatisfaction with the layoff approach.
Impact on innovation: With these key departures, Tesla loses valuable institutional knowledge and experience. New hires will take time to fill the gap, potentially hindering their ambitious goals.
The takeaway:
Favor companies with a growing workforce: This generally indicates a healthy and expanding business.
You can obtain these info through sites like
Simplywall.st > Search for company > Other information > Number of Employees
preferably since they update the figures every quarter
however on the free-tier account there is a limit of 5 companies view per day, alternatively you can use other sites like:
Macrotrends.net > Search for company > Other metrics > Employee Count
Research layoffs: Look beyond headline numbers. Use Google searches like "[Company name] + layoffs" to find news articles that detail the context and reasons behind recent layoffs.
Consider company culture: Glassdoor ratings offer valuable insights into employee satisfaction. A strong rating suggests a company that prioritizes its workforce, even during challenging times.
Remember:
Layoffs alone aren't necessarily a dealbreaker.
But when coupled with weak fundamentals and a poor company culture, they can be a strong signal for potential trouble down the road. By keeping an eye on employee trends, you can make informed investment decisions and build a stronger, more resilient portfolio.
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