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.
So if you're like me, you might be more interested in profitable, growing companies, like Synovus Financial (NYSE:SNV). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
Synovus Financial's Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. Impressively, Synovus Financial has grown EPS by 24% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling. It's also worth noting that the EPS growth has been assisted by share buybacks, indicating the company is in a position to return capital to shareholders.
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. Not all of Synovus Financial's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. While we note Synovus Financial's EBIT margins were flat over the last year, revenue grew by a solid 29% to US$1.7b. That's progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Synovus Financial.
Are Synovus Financial Insiders Aligned With All Shareholders?
Since Synovus Financial has a market capitalization of US$5.7b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. With a whopping US$67m worth of shares as a group, insiders have plenty riding on the company's success. That's certainly enough to make me think that management will be very focussed on long term growth.
Is Synovus Financial Worth Keeping An Eye On?
For growth investors like me, Synovus Financial's raw rate of earnings growth is a beacon in the night. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Synovus Financial is trading on a high P/E or a low P/E, relative to its industry.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.
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 email@example.com. 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.
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. Thank you for reading.