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 Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Safehold (NYSE:SAFE). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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 Fast Is Safehold Growing Its Earnings Per Share?
In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that Safehold's EPS went from US$0.16 to US$0.87 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement.
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 Safehold's revenue this year is 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. Safehold shareholders can take confidence from the fact that EBIT margins are up from 46% to 64%, and revenue is growing. That's great to see, on both counts.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Safehold's forecast profits?
Are Safehold Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.
While Safehold insiders did net -US$47.7k selling stock over the last year, they invested US$412k, a much higher figure. You could argue that level of buying implies genuine confidence in the business. Zooming in, we can see that the biggest insider purchase was by President & Chief Investment Officer Marcos Alvarado for US$238k worth of shares, at about US$17.42 per share.
Is Safehold Worth Keeping An Eye On?
Safehold's earnings per share have taken off like a rocket aimed right at the moon. If you're like me, you'll find it hard to ignore that sort of explosive EPS growth. And in fact, it could well signal a fundamental shift in the business economics. For me, this situation certainly piques my interest. Now, you could try to make up your mind on Safehold by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
As a growth investor I do like to see insider buying. But Safehold isn't the only one. You can see a a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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