It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Sirius XM Holdings (NASDAQ:SIRI). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
How Quickly Is Sirius XM Holdings Increasing Earnings Per Share?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. We can see that in the last three years Sirius XM Holdings grew its EPS by 13% per year. That's a pretty good rate, if the company can sustain it.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note Sirius XM Holdings achieved similar EBIT margins to last year, revenue grew by a solid 5.8% to US$8.9b. That's a real positive.
In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.
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 Sirius XM Holdings' future EPS 100% free.
Are Sirius XM Holdings Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$24b company like Sirius XM Holdings. 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. Holding US$68m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. This would indicate that the goals of shareholders and management are one and the same.
Should You Add Sirius XM Holdings To Your Watchlist?
One important encouraging feature of Sirius XM Holdings is that it is growing profits. To add an extra spark to the fire, significant insider ownership in the company is another highlight. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. What about risks? Every company has them, and we've spotted 3 warning signs for Sirius XM Holdings (of which 2 shouldn't be ignored!) you should know about.
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.
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.
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