It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.
So if you're like me, you might be more interested in profitable, growing companies, like Vector Group (NYSE:VGR). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Quickly Is Vector Group Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Vector Group managed to grow EPS by 12% per year, over three years. That's a good rate of growth, if it can be sustained.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Vector Group maintained stable EBIT margins over the last year, all while growing revenue 4.3% to US$1.5b. That's a real positive.
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 Vector Group's balance sheet strength, before getting too excited.
Are Vector Group Insiders Aligned With All Shareholders?
I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own Vector Group shares worth a considerable sum. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$139m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
Is Vector Group Worth Keeping An Eye On?
One important encouraging feature of Vector Group is that it is growing profits. If that's not enough on its own, there is also the rather notable levels of insider ownership. The combination sparks joy for me, so I'd consider keeping the company on a watchlist. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Vector Group is trading on a high P/E or a low P/E, relative to its industry.
Although Vector Group 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
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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