Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Terreno Realty (NYSE:TRNO). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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 Terreno Realty Growing?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Who among us would not applaud Terreno Realty's stratospheric annual EPS growth of 37%, compound, over the last three years? While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a glint in the eye of my lover.
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. Terreno Realty shareholders can take confidence from the fact that EBIT margins are up from 30% to 33%, and revenue is growing. That's great to see, on both counts.
In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.
Fortunately, we've got access to analyst forecasts of Terreno Realty's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Terreno Realty Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
The first bit of good news is that no Terreno Realty insiders reported share sales in the last twelve months. Even better, though, is that the Independent Director, David Lee, bought a whopping US$210k worth of shares, paying about US$42.04 per share, on average. To me that means at least one insider thinks that the company is doing well - and they are backing that view with cash.
Along with the insider buying, another encouraging sign for Terreno Realty is that insiders, as a group, have a considerable shareholding. Given insiders own a small fortune of shares, currently valued at US$69m, they have plenty of motivation to push the business to succeed. That's certainly enough to make me think that management will be very focussed on long term growth.
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, W. Baird is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$2.0b and US$6.4b, like Terreno Realty, the median CEO pay is around US$5.3m.
The CEO of Terreno Realty only received US$2.1m in total compensation for the year ending December 2018. That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. 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.
Should You Add Terreno Realty To Your Watchlist?
Terreno Realty's earnings per share have taken off like a rocket aimed right at the moon. Better yet, we can observe insider buying and the chief executive pay looks reasonable. It could be that Terreno Realty is at an inflection point, given the EPS growth. If so, then it the potential for further gains probably merit a spot on your watchlist. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Terreno Realty. You might benefit from giving it a glance today.
The good news is that Terreno Realty is not the only growth stock with insider buying. Here's a 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
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.
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. Thank you for reading.