“Why should I care about today’s stock price? I don’t own any (and with our bonus plan, it’s not likely that I’ll ever own any!).”

With those words, the store manager cut short the discussion about the recent rise in her company’s stock price. Across town, the manager of another store - part of a small, family owned chain - admitted to only a passing interest in how his competitor’s stock was doing lately. “What’s that have to do with me?” The answer to both questions might surprise you.

It's about confidence
For starters, you shouldn’t care about today’s stock price. Even the most sophisticated investors care little about daily price fluctuations. They are more concerned about trends that might affect the company’s future, and the quality of its management. The concept is not wholly unfamiliar; most of us worry about the same things when it comes to our own stores or paychecks. The truth is, the price of your company’s stock at three o’clock today no more reflects what it might sell for six months from now than last night’s closeout indicates what your past dues will be then. Certainly, failure to rent and collect consistently will, in the long run, result in lower BOR, lower revenue, lower profit. And that brings stock prices down as investors lose confidence in the company’s long-term outlook. See a connection?

Of course, no matter what you or other workers do, outside forces can still drive the price of your company’s stock up or down, if only temporarily. Negative news about retail sales in general, for example, can create a dip in rent to own stock prices, even when your business is great. But back to the original question: Why should you care about all this anyway?

The Fundamentals
Think of your company as a big brick building. Each share of the company’s stock could be likened to one brick in the building, with thousands of people owning big blocks of them, no one person owning it all. The value of each brick, or share, is calculated by a simple formula: divide the company’s after-tax profits (“earnings”) by the number of bricks (“shares”) to get earnings per share (“EPS”). Most industry people know that rto stores generally sell for a multiple of monthly revenues. The stock market is all about profit. RTO stocks - like all stocks - sell for some multiple of EPS, earnings per share This multiple can range from 8 times to 20 times or more. Of course, the greater the profits, the more valuable each share becomes. If each brick represents $1 of after tax earnings, and the stock sells for $15, it’s said to be selling at “15 Times Earnings.”

The company sold those “bricks” or shares to raise the funds required to build, operate and expand the business without borrowing money at high interest rates. Investors bought in because they had confidence in the ability of management to create value. The sum value of all those pieces, or shares, is what your company is worth. Everybody from the chairman down works for the people who own those bricks - the stockholders. Your performance, and the performance of management, adds future value or takes value away.

If performance slips - costs go up, BOR slides, revenue decreases - it’s likely that more people will want to sell stock than buy. So the price of a share goes down, reducing the value of the company. In that case, few want to buy new shares and even borrowing money is more expensive because of the company’s weaker financial condition. The amount of cash available for expansion - and buying inventory - shrinks (there goes your raise, and those new trucks you were hoping for). If management dozes for an instant, the cash crunch can become severe. When a company can no longer afford to compete, it might sell out to avoid shutting down altogether (and otherwise healthy companies can sell simply because the owner is retiring or has other investment opportunities).

We all share the same boat
All of this leads to the second question asked earlier by the manager of that family owned store across town: Why should he have any interest in the price of his publicly traded competitor’s stock? If he thought about all the reasons a stock price can fall, the answer would be clear: What do the financial analysts and investment fund managers know about the economy, the industry, or the market that I should know? Certain developments taking shape now could work against the small company’s ability to borrow money, buy product, or get customers in the door tomorrow. In that case, it makes little difference whether our company is traded on the New York Stock Exchange or owned by Uncle Wally and Aunt Edna. Times can get tough.

The stock shares of a company represent a piece of its future, which is your future if you work there. Every share of rto stock purchased represents a vote of confidence in you and your industry, no matter which store or company you call home. While it may be fun to check the newspaper or log onto the internet to see where your company’s stock finished today, it really doesn’t mean much if it ended lower, nor should the boss break out party hats if it finished a little higher. It’s more important to know that you performed well today in meeting the expectations of both the company and its customers. When that happens, everybody benefits. Including Uncle Wally and Aunt Edna.

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