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Is Now The Time To Put Goosehead Insurance (NASDAQ:GSHD) On Your Watchlist?

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·3 min read
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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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Goosehead Insurance (NASDAQ:GSHD). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Goosehead Insurance

How Fast Is Goosehead Insurance Growing Its Earnings Per Share?

Over the last three years, Goosehead Insurance 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 firecracker arcing through the night sky, Goosehead Insurance's EPS shot from US$0.22 to US$0.40, over the last year. You don't see 81% year-on-year growth like that, very often. The best case scenario? That the business has hit a true inflection point.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While we note Goosehead Insurance's EBIT margins were flat over the last year, revenue grew by a solid 60% to US$135m. That's progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
earnings-and-revenue-history

Fortunately, we've got access to analyst forecasts of Goosehead Insurance's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Goosehead Insurance 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. So it is good to see that Goosehead Insurance insiders have a significant amount of capital invested in the stock. Given insiders own a small fortune of shares, currently valued at US$85m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.

Does Goosehead Insurance Deserve A Spot On Your Watchlist?

Goosehead Insurance's earnings per share have taken off like a rocket aimed right at the moon. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So yes, on this short analysis I do think it's worth considering Goosehead Insurance for a spot on your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Goosehead Insurance (at least 1 which is a bit unpleasant) , and understanding these should be part of your investment process.

Although Goosehead Insurance 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.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.