Should I Invest in My Company’s Stock Purchase Plan?

Investing / Others
21

So this is not ESPP, it’s more like deferred stocks but you need to buy into them.

So just to be sure

  • you can buy X number of shares
  • you will pay current market price -20%
  • these shares would be only given to you after 3 years
  • after three years , you would get minimum 2X shares
  • Was it clarified what would happen to dividends during the 3 year period?
  • What happens it you leave the company? Would you get refund of what you paid to buy shares?
  • When exactly the free shares be rewarded ? At beginning of period or at the end of period ?

For example . Let’s say price is 600 CHF. You buy 10 shares for 4800 CHF. 1200 would be discount and also taxable.

After three years. You would get 20 shares. If the price remains the same, you will have shares worth 12000 CHF. If price drops by 50%, you will have 6000 CHF

Right?

If this is true, I don’t see many risks. LVMH is not a random company and it’s not going away anywhere anytime soon.

22

I understood it as

  • You get the purchased shares (at 20% discount) assigned immediately
  • If you stay for 3 years, you get the +1 share for each one you purchased initially
  • If you leave before those 3 years, you still get the purchased shares, but not the +1
    • Plus you need to pay maintenance fees or sell the shares

But OP needs to write in a bit clearer way, otherwise we just assume and (mis)interpret. :slight_smile:

1 Like
23

Nope. As per the 1st message, there is a maximum of 2 free shares.

Buy 10, get 2 at the end of the blocking period

2 Likes
24

With that updated holding timeline I would probably also think about it twice, especially if you don’t get the +1.
I would be tempted, but I’d have a really hard time deciding without the +1. And again, say goodbye forever to 15% of those dividends – France thanks and salutes you!
With the +1 it’s IMO still a no brainer and I would just do it.

You still have that 20% discount, but this would only be interesting if LVHM manages to maintain its current multiple.

Taking into account current earnings estimates, if the company stayed at its current P/E of 21.35, you could expect with current market price a CAGR of about 7.5%* (before taxes) by the end of 2027. Nice, but not great.
With your 20% purchase discount this would roughly double.** Nice, in fact, great, in my books.

If the company went to its fair multiple (according to Graham-Dodd) – given its ok but not great earnings growth – of 15 times earnings***, you’d look at a basically flat to slightly negative return profile by the end of 2027.
With your 20% purchase discount you’d still end up positive, maybe with a 5% CAGR or so.**

If the company stayed around its “normal” multiple – how the market has valued the company over the past 20 years – of 21.47, you’d look at a CAGR of (still only) slightly above 7.5% by the end of 2027.
With your 20% purchase discount this would roughly double.** Nice, in fact, great, in my books.

* Company stays at current P/E of about 21:

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** In all three scenarios you would still benefit from that 20% discount purchase price today (equivalent to a 25% return in three years if the company stayed exactly at its current multiple, which equates to a CAGR of 1.25^(1/3) - 1 = 7.7%.

*** Company returns to “fair” P/E of 15:

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25

Ahhh

I thought every share was coming with free share :slight_smile:
And I was like this is awesome

2 Likes
26

Same here. It appears to be a generously designed program and through a full market cycle you should do well here. Perhaps you can also offset risk with doing some options trading and then it really becomes ‘free money’.

27

Is there a limit to this? I mean, what’s to stop you from buying $10 million worth of shares with 20% discount and selling short the same $10 million worth?

You collect 4% interest on the short: 400k per year (assuming small borrow fees).

You get 20% discount, so save $2 million.

28

Anyway. Take the free money. I had an employer that also had a generous scheme but with a 3 year vesting period and I thought “Hmm, not sure I’ll stay that long, I’ll not bother.”

Guess what? I stayed there 12 years - AND the share price did well! It makes me cringe to think about the amount of money I left on the table with that stupid thought process.

1 Like
29

I have not much clue on this:

But: margin calls & short interest (you borrow the stock and have to PAY interest on that not receive it), is it even legally allowed?, professional trader status (and this could really make a case)

30

It’s anyway against most (all) company policies (since they want to protect themselves against accusations of insider trading)

1 Like
31

Exactly what I thought to be the case

32

Really? I’ve never seen this. How many such policies have you seen and in which industries?

33

AFAIK this is standard in tech (where most people have RSUs). Also hedging your grants or options is typically forbidden.

1 Like
34

Plus finance, pharma

35

Yes is the only right answer

1 Like