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Why Mike Ashley Deserves His Sports Direct International Plc Bonus!

Sports DirectWith around 40% of Sports Direct’s (LSE: SPD) shareholders voting against Mike Ashley’s potential pay packet, a Fool could be forgiven for thinking that it’s all bad news for investors. However, the bonus that could be paid to Mike Ashley (who owns 58% of Sports Direct) is dependent upon the company doubling profit in five years.

So, even if shareholders don’t want to see one individual Director (Mike Ashley is Executive Deputy Chairman) receive the majority of a possible £200 million payout, they could still benefit from a doubling of profit and, potentially, a much higher share price.

Added Value

Indeed, Mike Ashley founded Sports Direct and has been a driving force of its success. Although he isn’t as hands-on these days, he remains an individual with vast experience and who clearly continues to add value with regard to company strategy and acquisitions. Arguably, these are the key considerations for Sports Direct and their success is dependent upon the brands they buy, the geographies they serve and their customer offering – all areas in which Mike Ashley appears to add value. So, why not reward a key individual who could play a major role in doubling profits over the next five years?

Looking Ahead

Putting the bonus scheme to one side, Sports Direct continues to be an attractive investment at current levels. Certainly, it has considerable growth potential and earnings per share (EPS) are forecast to increase by 26% in the current year and by 15% next year. So, while shares in the company trade on a price to earnings (P/E) ratio of 19.6, their price to earnings growth (PEG) ratio is around 1. That’s the sweet-spot and could mean that shares in Sports Direct continue their rise that has seen them make gains of over 800% in the last five years.

Certainly, shares offer next to no yield because the company pays out only 4% of profit as a dividend. However, this is an indication of management’s confidence in the growth potential of the company, as they feel capital can be better utilised within the firm rather than being paid out to shareholders. Indeed, it is this growth potential that attracts shareholders and has delivered significant profits for them in recent years. Why not reward the team that makes it happen?

Of course, Sports Direct isn’t the only company with considerable growth potential. In fact, The Motley Fool has chosen its top growth share of 2014 and you can find out its identity by taking a look at a free and without obligation report. The company in question could help to boost your portfolio returns and make 2014 an even more prosperous year for your investments.

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Peter does not own shares in Sports Direct.