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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. 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.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Innovative Industrial Properties (NYSE:IIPR). 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.
Innovative Industrial Properties's Improving Profits
In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. You can imagine, then, that it almost knocked my socks off when I realized that Innovative Industrial Properties grew its EPS from US$0.18 to US$1.00, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company.
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. The good news is that Innovative Industrial Properties is growing revenues, and EBIT margins improved by 27 percentage points to 43%, over the last year. Ticking those two boxes is a good sign of growth, in my book.
In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.
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 Innovative Industrial Properties's future profits.
Are Innovative Industrial Properties Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. 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.
Although we did see some insider selling (worth -US$464.1k) this was overshadowed by a mountain of buying, totalling US$2.8m in just one year. I find this encouraging because it suggests they are optimistic about the Innovative Industrial Properties's future. It is also worth noting that it was Executive Chairman Alan Gold who made the biggest single purchase, worth US$2.7m, paying US$40.00 per share.
The good news, alongside the insider buying, for Innovative Industrial Properties bulls is that insiders (collectively) have a meaningful investment in the stock. With a whopping US$69m worth of shares as a group, insiders have plenty riding on the company's success. This should keep them focused on creating long term value for shareholders.
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Paul Smithers, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like Innovative Industrial Properties with market caps between US$1.0b and US$3.2b is about US$4.1m.
The CEO of Innovative Industrial Properties only received US$1.1m in total compensation for the year ending December 2018. That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add Innovative Industrial Properties To Your Watchlist?
Innovative Industrial Properties's earnings per share growth has been so hot recently that thinking about it is making me blush. The company can also boast of insider buying, and reasonable remuneration for the CEO. The strong EPS growth suggests Innovative Industrial Properties may be at an inflection point. For those chasing fast growth, then, I'd suggest to stock merits monitoring. Of course, profit growth is one thing but it's even better if Innovative Industrial Properties is receiving high returns on equity, since that should imply it can keep growing without much need for capital. Click on this link to see how it is faring against the average in its industry.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Innovative Industrial Properties, you'll probably love this free list of growing companies that insiders are buying.
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.