I Ran A Stock Scan For Earnings Growth And Genie Energy (NYSE:GNE) Passed With Ease
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 Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
So if you're like me, you might be more interested in profitable, growing companies, like Genie Energy (NYSE:GNE). 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 Genie Energy
How Fast Is Genie Energy 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 Genie Energy's stratospheric annual EPS growth of 38%, compound, over the last three years? That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.
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 Genie Energy's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Genie Energy shareholders can take confidence from the fact that EBIT margins are up from 3.2% to 5.5%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.
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.
Since Genie Energy is no giant, with a market capitalization of US$186m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Genie Energy Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that Genie Energy insiders have a significant amount of capital invested in the stock. To be specific, they have US$19m worth of shares. That's a lot of money, and no small incentive to work hard. That amounts to 10% of the company, demonstrating a degree of high-level alignment with shareholders.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. I discovered that the median total compensation for the CEOs of companies like Genie Energy with market caps between US$100m and US$400m is about US$877k.
The Genie Energy CEO received US$779k in compensation for the year ending . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add Genie Energy To Your Watchlist?
Genie Energy's earnings have taken off like any random crypto-currency did, back in 2017. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The sharp increase in earnings could signal good business momentum. Big growth can make big winners, so I do think Genie Energy is worth considering carefully. You should always think about risks though. Case in point, we've spotted 1 warning sign for Genie Energy you should be aware of.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.
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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