Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 SPH REIT (SGX:SK6U). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Quickly Is SPH REIT Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, SPH REIT has grown EPS by 5.2% per year. While that sort of growth rate isn't amazing, it does show the business is growing.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). SPH REIT maintained stable EBIT margins over the last year, all while growing revenue 11% to S$235m. That's a real positive.
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.
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 SPH REIT.
Are SPH REIT Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
First things first; I didn't see insiders sell SPH REIT shares in the last year. But the really good news is that Non-Executive & Independent Chairman of SPH REIT Management Pte. Ltd. Horn Kee Leong spent S$321k buying stock stock, at an average price of around S$1.07. To me that means at least one insider thinks that the company is doing well - and they are backing that view with cash.
Does SPH REIT Deserve A Spot On Your Watchlist?
One positive for SPH REIT is that it is growing EPS. That's nice to see. While some companies are struggling to grow EPS, SPH REIT seems free from that morose affliction. The cherry on top is that we have an insider buying shares. That encourages me further to keep an eye on this stock. Of course, just because SPH REIT is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
The good news is that SPH REIT is not the only growth stock with insider buying. Here's a list of them... 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
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