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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
In contrast to all that, I prefer to spend time on companies like H.B. Fuller (NYSE:FUL), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business than can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
How Fast Is H.B. Fuller Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years H.B. Fuller grew its EPS by 6.6% per year. While that sort of growth rate isn't amazing, it does show the business is growing.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. H.B. Fuller maintained stable EBIT margins over the last year, all while growing revenue 8.4% to US$3.0b. That's a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future H.B. Fuller EPS 100% free.
Are H.B. Fuller Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Although we did see some insider selling (worth -US$1.6m) this was overshadowed by a mountain of buying, totalling US$2.5m in just one year. This makes me even more interested in H.B. Fuller because it suggests that those who understand the company best, are optimistic. It is also worth noting that it was President James Owens who made the biggest single purchase, worth US$639k, paying US$46.50 per share.
The good news, alongside the insider buying, for H.B. Fuller bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have US$21m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.9% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Does H.B. Fuller Deserve A Spot On Your Watchlist?
As I already mentioned, H.B. Fuller is a growing business, which is what I like to see. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist - and arguably a research priority. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of H.B. Fuller.
As a growth investor I do like to see insider buying. But H.B. Fuller 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
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