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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
In contrast to all that, many investors prefer to focus on companies like SBA Communications (NASDAQ:SBAC), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
How Quickly Is SBA Communications Increasing Earnings Per Share?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Recognition must be given to the that SBA Communications has grown EPS by 42% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Our analysis has highlighted that SBA Communications' revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. The good news is that SBA Communications is growing revenues, and EBIT margins improved by 3.3 percentage points to 37%, over the last year. That's great to see, on both counts.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
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 SBA Communications' future profits.
Are SBA Communications Insiders Aligned With All Shareholders?
Since SBA Communications has a market capitalisation of US$37b, we wouldn't expect insiders to hold a large percentage of shares. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. We note that their impressive stake in the company is worth US$463m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations over US$8.0b, like SBA Communications, the median CEO pay is around US$13m.
SBA Communications' CEO took home a total compensation package worth US$10.0m in the year leading up to December 2021. That is actually below the median for CEO's of similarly sized companies. 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.
Is SBA Communications Worth Keeping An Eye On?
SBA Communications' earnings per share growth have been climbing higher at an appreciable rate. An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management. The sharp increase in earnings could signal good business momentum. Big growth can make big winners, so the writing on the wall tells us that SBA Communications is worth considering carefully. We should say that we've discovered 3 warning signs for SBA Communications (2 are a bit concerning!) 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 free list of them here.
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.
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