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With EPS Growth And More, Texas Pacific Land Trust (NYSE:TPL) Is Interesting

Simply Wall St

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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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In contrast to all that, I prefer to spend time on companies like Texas Pacific Land Trust (NYSE:TPL), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business than can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for Texas Pacific Land Trust

How Fast Is Texas Pacific Land Trust Growing Its Earnings Per Share?

Over the last three years, Texas Pacific Land Trust has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like a firecracker arcing through the night sky, Texas Pacific Land Trust's EPS shot from US$15.55 to US$39.36, over the last year. You don't see 153% year-on-year growth like that, very often.

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. On the one hand, Texas Pacific Land Trust's EBIT margins fell over the last year, but on the other hand, revenue grew. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.

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.

NYSE:TPL Income Statement, June 7th 2019

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Texas Pacific Land Trust's balance sheet strength, before getting too excited.

Are Texas Pacific Land Trust Insiders Aligned With All Shareholders?

As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. For companies with market capitalizations between US$4.0b and US$12b, like Texas Pacific Land Trust, the median CEO pay is around US$6.9m.

The CEO of Texas Pacific Land Trust only received US$2.3m in total compensation for the year ending December 2018. That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Does Texas Pacific Land Trust Deserve A Spot On Your Watchlist?

Texas Pacific Land Trust's earnings per share have taken off like a rocket aimed right at the moon. Such fast EPS growth makes me wonder if the business has hit an inflection point (and I mean the good kind.) At the same time the reasonable CEO compensation reflects well on the board of directors. So Texas Pacific Land Trust looks like it could be a good quality growth stock, at first glance. That's worth watching. Now, you could try to make up your mind on Texas Pacific Land Trust by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

Although Texas Pacific Land Trust certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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 editorial-team@simplywallst.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.