Here's Why I Think Lowe's Companies (NYSE:LOW) Is An Interesting Stock
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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
In contrast to all that, I prefer to spend time on companies like Lowe's Companies (NYSE:LOW), which has not only revenues, but also profits. Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Check out our latest analysis for Lowe's Companies
Lowe's Companies's Improving Profits
Over the last three years, Lowe's Companies 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 falcon taking flight, Lowe's Companies's EPS soared from US$7.76 to US$12.71, over the last year. That's a commendable gain of 64%.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. While we note Lowe's Companies's EBIT margins were flat over the last year, revenue grew by a solid 7.5% to US$96b. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of Lowe's Companies's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Lowe's Companies Insiders Aligned With All Shareholders?
Since Lowe's Companies has a market capitalization of US$141b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Given insiders own a small fortune of shares, currently valued at US$74m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.
Does Lowe's Companies Deserve A Spot On Your Watchlist?
For growth investors like me, Lowe's Companies's raw rate of earnings growth is a beacon in the night. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Lowe's Companies (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.
Although Lowe's Companies 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.
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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.
