We Ran A Stock Scan For Earnings Growth And American Realty Investors (NYSE:ARL) Passed With Ease
The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
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 American Realty Investors (NYSE:ARL). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
Check out our latest analysis for American Realty Investors
American Realty Investors' Improving Profits
In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. So for many budding investors, improving EPS is considered a good sign. It is awe-striking that American Realty Investors' EPS went from US$2.49 to US$21.60 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an inflection point?
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Our analysis has highlighted that American Realty Investors' revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. American Realty Investors shareholders can take confidence from the fact that EBIT margins are up from -4.9% to 89%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check American Realty Investors' balance sheet strength, before getting too excited.
Are American Realty Investors Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. 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.
With strong conviction, American Realty Investors insiders have stood united by refusing to sell shares over the last year. But the bigger deal is that the Director, Bradford Phillips, paid US$185k to buy shares at an average price of US$17.31. It seems at least one insider has seen potential in the company's future - and they're willing to put money on the line.
Should You Add American Realty Investors To Your Watchlist?
American Realty Investors' earnings per share growth have been climbing higher at an appreciable rate. Growth investors should find it difficult to look past that strong EPS move. And indeed, it could be a sign that the business is at an inflection point. If this is the case, then keeping a watch over American Realty Investors could be in your best interest. You should always think about risks though. Case in point, we've spotted 1 warning sign for American Realty Investors you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of American Realty Investors, 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.
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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.
