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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In contrast to all that, I prefer to spend time on companies like Martinrea International (TSE:MRE), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
Martinrea International's Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. As a tree reaches steadily for the sky, Martinrea International's EPS has grown 19% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners. And for those who like the finer details, I'll add that the EPS growth has been helped by share buybacks, demonstrating that the business is positioned to return capital to its shareholders.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. It seems Martinrea International is pretty stable, since revenue and EBIT margins are pretty flat year on year. That's not bad, but it doesn't point to ongoing future growth, either.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Martinrea International's forecast profits?
Are Martinrea International Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
It's good to see Martinrea International insiders walking the walk, by spending CA$845k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to brim with joyful expectancy. It is also worth noting that it was President Frank D'Eramo who made the biggest single purchase, worth CA$196k, paying CA$11.96 per share.
Should You Add Martinrea International To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Martinrea International's strong EPS growth. Not only is that growth rate rather juicy, but the insider buying makes my mouth water. So on this analysis I believe Martinrea International is probably worth spending some time on. Another important measure of business quality not discussed here, is return on equity (ROE). Click on this link to see how Martinrea International shapes up to industry peers, when it comes to ROE.
The good news is that Martinrea International is not the only growth stock with insider buying. Here's a a list of them... with insider buying in the last three months!
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.