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 the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like ONE Gas (NYSE:OGS). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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 Quickly Is ONE Gas Increasing Earnings Per Share?
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. That makes EPS growth an attractive quality for any company. We can see that in the last three years ONE Gas grew its EPS by 9.7% per year. That growth rate is fairly good, assuming the company can keep it up.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). ONE Gas reported flat revenue and EBIT margins over the last year. That's not a major concern but nor does it point to the long term growth we like to see.
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.
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 ONE Gas's future profits.
Are ONE Gas Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
While ONE Gas insiders did net -US$26.9k selling stock over the last year, they invested US$486k, a much higher figure. On balance, to me, this signals their optimism. It is also worth noting that it was Non-Executive Chairman of the Board John Gibson who made the biggest single purchase, worth US$248k, paying US$73.42 per share.
Along with the insider buying, another encouraging sign for ONE Gas is that insiders, as a group, have a considerable shareholding. Given insiders own a small fortune of shares, currently valued at US$67m, they have plenty of motivation to push the business to succeed. That's certainly enough to make me think that management will be very focussed on long term growth.
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Pierce Norton is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$2.0b and US$6.4b, like ONE Gas, the median CEO pay is around US$5.6m.
ONE Gas offered total compensation worth US$4.2m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Does ONE Gas Deserve A Spot On Your Watchlist?
One positive for ONE Gas is that it is growing EPS. That's nice to see. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. You should always think about risks though. Case in point, we've spotted 3 warning signs for ONE Gas you should be aware of, and 1 of them is a bit concerning.
As a growth investor I do like to see insider buying. But ONE Gas 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.
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.
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