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 currently lacks a track record of revenue and profit. 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. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Legal & General Group (LON:LGEN). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
Legal & General Group's Earnings Per Share Are Growing
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Legal & General Group managed to grow EPS by 4.4% per year, over three years. This may not be setting the world alight, but it does show that EPS is on the upwards trend.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Unfortunately, Legal & General Group's revenue dropped 46% last year, but the silver lining is that EBIT margins improved from 10% to 31%. That falls short of ideal.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Legal & General Group.
Are Legal & General Group Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Shareholders in Legal & General Group will be more than happy to see insiders committing themselves to the company, spending UK£182k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to be brimming with joyful expectancy. It is also worth noting that it was Independent Non-Executive Director Nilufer von Bismarck who made the biggest single purchase, worth UK£9.5k, paying UK£2.89 per share.
The good news, alongside the insider buying, for Legal & General Group bulls is that insiders (collectively) have a meaningful investment in the stock. As a matter of fact, their holding is valued at UK£15m. That's a lot of money, and no small incentive to work hard. Despite being just 0.1% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Is Legal & General Group Worth Keeping An Eye On?
As previously touched on, Legal & General Group is a growing business, which is encouraging. Better yet, insiders are significant shareholders, and have been buying more shares. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. You should always think about risks though. Case in point, we've spotted 2 warning signs for Legal & General Group you should be aware of, and 1 of them is concerning.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Legal & General Group, you'll probably love this free list of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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