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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in National Health Investors (NYSE:NHI). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
National Health Investors's Improving Profits
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. National Health Investors boosted its trailing twelve month EPS from US$3.62 to US$4.27, in the last year. That's a 18% gain; respectable growth in the broader scheme of things.
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. I note that National Health Investors's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. National Health Investors maintained stable EBIT margins over the last year, all while growing revenue 7.0% to US$332m. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
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 National Health Investors EPS 100% free.
Are National Health Investors 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. 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$152k) this was overshadowed by a mountain of buying, totalling US$1.7m in just one year. I find this encouraging because it suggests they are optimistic about the National Health Investors's future. It is also worth noting that it was Chairman of the Board W. Adams who made the biggest single purchase, worth US$976k, paying US$36.16 per share.
On top of the insider buying, it's good to see that National Health Investors insiders have a valuable investment in the business. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$130m. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.
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, D. Mendelsohn is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$2.0b and US$6.4b, like National Health Investors, the median CEO pay is around US$5.0m.
The National Health Investors CEO received total compensation of just US$1.8m in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. 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 National Health Investors Deserve A Spot On Your Watchlist?
One positive for National Health Investors is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. We should say that we've discovered 3 warning signs for National Health Investors (2 are a bit concerning!) that you should be aware of before investing here.
As a growth investor I do like to see insider buying. But National Health Investors 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.
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