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I Ran A Stock Scan For Earnings Growth And Sun Life Financial (TSE:SLF) Passed With Ease

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·4 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. 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.

In contrast to all that, I prefer to spend time on companies like Sun Life Financial (TSE:SLF), which has not only revenues, but also profits. 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.

See our latest analysis for Sun Life Financial

How Fast Is Sun Life Financial Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Sun Life Financial grew its EPS by 11% per year. That growth rate is fairly good, assuming the company can keep it up.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. I note that Sun Life Financial's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Sun Life Financial's EBIT margins were flat over the last year, revenue grew by a solid 10% to CA$38b. 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

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Sun Life Financial EPS 100% free.

Are Sun Life Financial Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

First things first; I didn't see insiders sell Sun Life Financial shares in the last year. But the really good news is that Independent Corporate Director Stephanie Coyles spent CA$357k buying stock stock, at an average price of around CA$60.53. Big buys like that give me a sense of opportunity; actions speak louder than words.

Does Sun Life Financial Deserve A Spot On Your Watchlist?

As I already mentioned, Sun Life Financial is a growing business, which is what I like to see. While some companies are struggling to grow EPS, Sun Life Financial seems free from that morose affliction. The cherry on top is that we have an insider buying shares. That encourages me further to keep an eye on this stock. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Sun Life Financial is trading on a high P/E or a low P/E, relative to its industry.

The good news is that Sun Life Financial is not the only growth stock with insider buying. Here's a list of them... 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.

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