With EPS Growth And More, Canadian National Railway (TSE:CNR) Makes An Interesting Case
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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
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 Canadian National Railway (TSE:CNR). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
View our latest analysis for Canadian National Railway
How Fast Is Canadian National Railway Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Canadian National Railway has managed to grow EPS by 21% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.
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. It seems Canadian National Railway is pretty stable, since revenue and EBIT margins are pretty flat year on year. While this doesn't ring alarm bells, it may not meet the expectations of growth-minded investors.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Canadian National Railway's forecast profits?
Are Canadian National Railway Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Despite CA$2.5m worth of sales, Canadian National Railway insiders have overwhelmingly been buying the stock, spending CA$3.6m on purchases in the last twelve months. An optimistic sign for those with Canadian National Railway in their watchlist. Zooming in, we can see that the biggest insider purchase was by Independent Director Margaret McKenzie for CA$1.3m worth of shares, at about CA$173 per share.
The good news, alongside the insider buying, for Canadian National Railway bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a considerable amount of wealth invested in it, currently valued at CA$1.8b. Holders should find this level of insider commitment quite encouraging, since it would ensure that the leaders of the company would also experience their success, or failure, with the stock.
Does Canadian National Railway Deserve A Spot On Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into Canadian National Railway's strong EPS growth. Furthermore, company insiders have been adding to their significant stake in the company. These things considered, this is one stock worth watching. We should say that we've discovered 1 warning sign for Canadian National Railway that you should be aware of before investing here.
Keen growth investors love to see insider buying. Thankfully, Canadian National Railway isn't the only one. You can see a a curated list of Canadian 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.
