Is Now The Time To Put Imperial Brands (LON:IMB) On Your Watchlist?
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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Imperial Brands (LON:IMB). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
See our latest analysis for Imperial Brands
How Fast Is Imperial Brands Growing?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. As a tree reaches steadily for the sky, Imperial Brands's EPS has grown 32% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
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). Imperial Brands shareholders can take confidence from the fact that EBIT margins are up from 14% to 19%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.
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.
While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Imperial Brands?
Are Imperial Brands Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
It's good to see Imperial Brands insiders walking the walk, by spending UK£271k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to brim with joyful expectancy. Zooming in, we can see that the biggest insider purchase was by Executive Officer Oliver Tant for UK£159k worth of shares, at about UK£15.77 per share.
The good news, alongside the insider buying, for Imperial Brands bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold UK£13m worth of its stock. That's a lot of money, and no small incentive to work hard. Even though that's only about 0.09% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Stefan Bomhard is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like Imperial Brands, with market caps over UK£5.7b, is about UK£2.6m.
The CEO of Imperial Brands only received UK£1.1m in total compensation for the year ending . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. I'd also argue reasonable pay levels attest to good decision making more generally.
Should You Add Imperial Brands To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Imperial Brands's strong EPS growth. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So it's fair to say I think this stock may well deserve a spot on your watchlist. Even so, be aware that Imperial Brands is showing 3 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Imperial Brands, 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.
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.
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