Does Keyera (TSE:KEY) Deserve A Spot On Your Watchlist?
It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
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 Keyera (TSE:KEY). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Keyera with the means to add long-term value to shareholders.
View our latest analysis for Keyera
Keyera's Improving Profits
Keyera has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. It's good to see that Keyera's EPS has grown from CA$1.48 to CA$1.85 over twelve months. This amounts to a 25% gain; a figure that shareholders will be pleased to see.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Despite the relatively flat revenue figures, shareholders will be pleased to see EBIT margins have grown from 11% to 14% in the last 12 months. That's a real positive.
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 Keyera's future profits.
Are Keyera Insiders Aligned With All Shareholders?
Owing to the size of Keyera, we wouldn't expect insiders to hold a significant proportion of the company. But we do take comfort from the fact that they are investors in the company. To be specific, they have CA$20m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.3% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
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. The median total compensation for CEOs of companies similar in size to Keyera, with market caps between CA$5.4b and CA$16b, is around CA$5.4m.
Keyera offered total compensation worth CA$4.8m to its CEO in the year to December 2022. That comes in below the average for similar sized companies and seems pretty reasonable. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Should You Add Keyera To Your Watchlist?
One positive for Keyera is that it is growing EPS. That's nice to see. Earnings growth might be the main attraction for Keyera, but the fun does not stop there. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. We should say that we've discovered 3 warning signs for Keyera (1 makes us a bit uncomfortable!) that you should be aware of before investing here.
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Canadian companies which have demonstrated growth backed by recent insider purchases.
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.
