It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Coca-Cola Consolidated (NASDAQ:COKE). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Coca-Cola Consolidated with the means to add long-term value to shareholders.
Coca-Cola Consolidated's Improving Profits
In the last three years Coca-Cola Consolidated's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. Coca-Cola Consolidated's EPS skyrocketed from US$25.25 to US$35.29, in just one year; a result that's bound to bring a smile to shareholders. That's a fantastic gain of 40%.
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. EBIT margins for Coca-Cola Consolidated remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 11% to US$6.0b. That's encouraging news for the company!
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.
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 Coca-Cola Consolidated's balance sheet strength, before getting too excited.
Are Coca-Cola Consolidated Insiders Aligned With All Shareholders?
It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Coca-Cola Consolidated insiders have a significant amount of capital invested in the stock. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$1.1b. That equates to 25% of the company, making insiders powerful and aligned with other shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.
Should You Add Coca-Cola Consolidated To Your Watchlist?
For growth investors, Coca-Cola Consolidated's raw rate of earnings growth is a beacon in the night. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. The growth and insider confidence is looked upon well and so it's worthwhile to investigate further with a view to discern the stock's true value. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Coca-Cola Consolidated , and understanding this should be part of your investment process.
The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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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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.
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