If EPS Growth Is Important To You, Transurban Group (ASX:TCL) Presents An Opportunity
Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
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 Transurban Group (ASX:TCL). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
See our latest analysis for Transurban Group
How Fast Is Transurban Group Growing Its Earnings Per Share?
Transurban Group 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. So it would be better to isolate the growth rate over the last year for our analysis. To the delight of shareholders, Transurban Group's EPS soared from AU$0.053 to AU$0.073, over the last year. That's a commendable gain of 38%.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Transurban Group shareholders can take confidence from the fact that EBIT margins are up from 22% to 26%, and revenue is growing. That's great to see, on both counts.
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.
Fortunately, we've got access to analyst forecasts of Transurban Group's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Transurban Group Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
We note that Transurban Group insiders spent AU$228k on stock, over the last year; in contrast, we didn't see any selling. That's nice to see, because it suggests insiders are optimistic. Zooming in, we can see that the biggest insider purchase was by Independent Chairman Craig Drummond for AU$127k worth of shares, at about AU$12.70 per share.
Along with the insider buying, another encouraging sign for Transurban Group is that insiders, as a group, have a considerable shareholding. Indeed, they hold AU$24m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 0.06%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because on our analysis the CEO, Michelle Jablko, is paid less than the median for similar sized companies. The median total compensation for CEOs of companies similar in size to Transurban Group, with market caps over AU$12b, is around AU$6.2m.
Transurban Group offered total compensation worth AU$3.1m to its CEO in the year to June 2023. That is actually below the median for CEO's of similarly sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Should You Add Transurban Group To Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into Transurban Group's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. Astute investors will want to keep this stock on watch. You still need to take note of risks, for example - Transurban Group has 2 warning signs we think you should be aware of.
Keen growth investors love to see insider buying. Thankfully, Transurban Group isn't the only one. You can see a a curated list of Australian companies which have exhibited consistent growth accompanied by recent insider buying.
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.
