The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Equity LifeStyle Properties (NYSE:ELS). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Equity LifeStyle Properties with the means to add long-term value to shareholders.
Equity LifeStyle Properties' Improving Profits
Even when EPS earnings per share (EPS) growth is unexceptional, company value can be created if this rate is sustained each year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Equity LifeStyle Properties' EPS has risen over the last 12 months, growing from US$1.33 to US$1.51. There's little doubt shareholders would be happy with that 14% gain.
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. Our analysis has highlighted that Equity LifeStyle Properties' revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. While we note Equity LifeStyle Properties achieved similar EBIT margins to last year, revenue grew by a solid 16% to US$1.4b. That's encouraging news for the company!
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Equity LifeStyle Properties' future profits.
Are Equity LifeStyle Properties Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$14b company like Equity LifeStyle Properties. But we do take comfort from the fact that they are investors in the company. Notably, they have an enviable stake in the company, worth US$221m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.
It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations over US$8.0b, like Equity LifeStyle Properties, the median CEO pay is around US$13m.
The Equity LifeStyle Properties CEO received total compensation of just US$4.1m in the year to December 2021. First impressions seem to indicate a compensation policy that is favourable to shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Is Equity LifeStyle Properties Worth Keeping An Eye On?
One positive for Equity LifeStyle Properties is that it is growing EPS. That's nice to see. The fact that EPS is growing is a genuine positive for Equity LifeStyle Properties, but the pleasant picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, you'd argue this one is worthy of the watchlist, at least. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Equity LifeStyle Properties (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.
Although Equity LifeStyle Properties certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
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