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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Piedmont Office Realty Trust (NYSE:PDM). 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. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Fast Is Piedmont Office Realty Trust Growing?
As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Piedmont Office Realty Trust grew its EPS by 15% per year. That's a good rate of growth, if it can be sustained.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Not all of Piedmont Office Realty Trust's revenue last year was 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 Piedmont Office Realty Trust's EBIT margins are down, it's not all bad news as revenues are, at least, stable. That doesn't inspire a great deal of confidence.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Piedmont Office Realty Trust?
Are Piedmont Office Realty Trust Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
It's good to see Piedmont Office Realty Trust insiders walking the walk, by spending US$434k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to brim with joyful expectancy. It is also worth noting that it was Independent Director Jeffrey Swope who made the biggest single purchase, worth US$232k, paying US$11.60 per share.
The good news, alongside the insider buying, for Piedmont Office Realty Trust bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have US$32m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 1.4% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Christopher Smith, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like Piedmont Office Realty Trust with market caps between US$1.0b and US$3.2b is about US$3.8m.
The Piedmont Office Realty Trust CEO received US$3.2m in compensation for the year ending . 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 a culture of integrity, in a broader sense.
Is Piedmont Office Realty Trust Worth Keeping An Eye On?
One important encouraging feature of Piedmont Office Realty Trust is that it is growing profits. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for my watchlist - and arguably a research priority. Still, you should learn about the 4 warning signs we've spotted with Piedmont Office Realty Trust (including 2 which don't sit too well with us) .
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Piedmont Office Realty Trust, you'll probably love this free list of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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. 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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