Here's Why We Think QBE Insurance Group (ASX:QBE) Might Deserve Your Attention Today
The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in QBE Insurance Group (ASX:QBE). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
View our latest analysis for QBE Insurance Group
QBE Insurance Group's Improving Profits
Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. So a growing EPS generally brings attention to a company in the eyes of prospective investors. It's an outstanding feat for QBE Insurance Group to have grown EPS from US$0.21 to US$0.72 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. It's noted that, last year, QBE Insurance Group's revenue from operations was lower than its revenue, so that could distort our analysis of its margins. Unfortunately, QBE Insurance Group's revenue dropped 9.8% last year, but the silver lining is that EBIT margins improved from -0.5% to 17%. While not disastrous, these figures could be better.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for QBE Insurance Group's future EPS 100% free.
Are QBE Insurance Group Insiders Aligned With All Shareholders?
Since QBE Insurance Group has a market capitalisation of AU$23b, we wouldn't expect insiders to hold a large percentage of shares. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. To be specific, they have US$20m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 0.09%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
Does QBE Insurance Group Deserve A Spot On Your Watchlist?
QBE Insurance Group's earnings have taken off in quite an impressive fashion. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So at the surface level, QBE Insurance Group is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Of course, just because QBE Insurance Group 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.
Although QBE Insurance Group certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with insider buying, then check out this handpicked selection of Australian companies that not only boast of strong growth but have also seen recent insider buying..
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.
