Do Great-West Lifeco's (TSE:GWO) Earnings Warrant Your Attention?
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. 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.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Great-West Lifeco (TSE:GWO). 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.
See our latest analysis for Great-West Lifeco
How Fast Is Great-West Lifeco Growing Its Earnings Per Share?
Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So EPS growth can certainly encourage an investor to take note of a stock. Great-West Lifeco has grown its trailing twelve month EPS from CA$3.17 to CA$3.36, in the last year. That's a modest gain of 5.8%.
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). I note that Great-West Lifeco's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Great-West Lifeco maintained stable EBIT margins over the last year, all while growing revenue 5.2% to CA$64b. That's progress.
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.
Fortunately, we've got access to analyst forecasts of Great-West Lifeco's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Great-West Lifeco 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, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
While we did see insider selling of Great-West Lifeco stock in the last year, one single insider spent plenty more buying. To wit, Jeffrey Macoun outlaid CA$557k for shares, at about CA$29.64 per share. To me, that's probably a sign of conviction.
Along with the insider buying, another encouraging sign for Great-West Lifeco is that insiders, as a group, have a considerable shareholding. Indeed, they hold CA$32m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 0.09% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Does Great-West Lifeco Deserve A Spot On Your Watchlist?
One important encouraging feature of Great-West Lifeco is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. Of course, just because Great-West Lifeco 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.
As a growth investor I do like to see insider buying. But Great-West Lifeco 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
