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Should You Be Adding CareTrust REIT (NASDAQ:CTRE) To Your Watchlist Today?

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Simply Wall St
·5 min read
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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in CareTrust REIT (NASDAQ:CTRE). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

See our latest analysis for CareTrust REIT

How Quickly Is CareTrust REIT Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. As a tree reaches steadily for the sky, CareTrust REIT's EPS has grown 34% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. I note that CareTrust REIT's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. The good news is that CareTrust REIT is growing revenues, and EBIT margins improved by 3.9 percentage points to 59%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
earnings-and-revenue-history

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for CareTrust REIT?

Are CareTrust REIT Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

We haven't seen any insiders selling CareTrust REIT shares, in the last year. With that in mind, it's heartening that Spencer Plumb, the Independent Director of the company, paid US$19k for shares at around US$12.77 each.

Along with the insider buying, another encouraging sign for CareTrust REIT is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$38m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 1.8% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Greg Stapley is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$1.0b and US$3.2b, like CareTrust REIT, the median CEO pay is around US$3.7m.

CareTrust REIT offered total compensation worth US$3.2m to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Does CareTrust REIT Deserve A Spot On Your Watchlist?

You can't deny that CareTrust REIT has grown its earnings per share at a very impressive rate. That's attractive. Better still, insiders own a large chunk of the company and one has even been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. Even so, be aware that CareTrust REIT is showing 2 warning signs in our investment analysis , you should know about...

As a growth investor I do like to see insider buying. But CareTrust REIT isn't the only one. You can see a a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.