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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 Old Republic International (NYSE:ORI). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Old Republic International's Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. Who among us would not applaud Old Republic International's stratospheric annual EPS growth of 49%, compound, over the last three years? While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.
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. I note that Old Republic International's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Old Republic International shareholders can take confidence from the fact that EBIT margins are up from 1.2% to 24%, and revenue is growing. That's great to see, on both counts.
In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.
Fortunately, we've got access to analyst forecasts of Old Republic International's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Old Republic International 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, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Any way you look at it Old Republic International shareholders can gain quiet confidence from the fact that insiders shelled out US$617k to buy stock, over the last year. 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 Chairman Aldo Zucaro for US$157k worth of shares, at about US$16.27 per share.
On top of the insider buying, it's good to see that Old Republic International insiders have a valuable investment in the business. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$107m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
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, Craig Smiddy is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like Old Republic International with market caps between US$4.0b and US$12b is about US$6.5m.
The Old Republic International CEO received total compensation of just US$1.9m in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.
Is Old Republic International Worth Keeping An Eye On?
Old Republic International's earnings per share have taken off like a rocket aimed right at the moon. Just as heartening; insiders both own and are buying more stock. Because of the potential that it has reached an inflection point, I'd suggest Old Republic International belongs on the top of your watchlist. It is worth noting though that we have found 2 warning signs for Old Republic International (1 is a bit unpleasant!) that you need to take into consideration.
As a growth investor I do like to see insider buying. But Old Republic International isn't the only one. You can see a a free list of them here.
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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