We Ran A Stock Scan For Earnings Growth And Churchill Downs (NASDAQ:CHDN) Passed With Ease
Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Churchill Downs (NASDAQ:CHDN). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
See our latest analysis for Churchill Downs
Churchill Downs' Improving Profits
Churchill Downs has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. In impressive fashion, Churchill Downs' EPS grew from US$6.64 to US$14.77, over the previous 12 months. It's a rarity to see 123% year-on-year growth like that.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Churchill Downs shareholders can take confidence from the fact that EBIT margins are up from 19% to 23%, and revenue is growing. That's great to see, on both counts.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Churchill Downs?
Are Churchill Downs Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Belief in the company remains high for insiders as there hasn't been a single share sold by the management or company board members. But more importantly, Independent Chairman of the Board R. Rankin spent US$93k acquiring shares, doing so at an average price of US$177. It seems at least one insider has seen potential in the company's future - and they're willing to put money on the line.
On top of the insider buying, it's good to see that Churchill Downs insiders have a valuable investment in the business. Notably, they have an enviable stake in the company, worth US$319m. Holders should find this level of insider commitment quite encouraging, since it would ensure that the leaders of the company would also experience their success, or failure, with the stock.
Is Churchill Downs Worth Keeping An Eye On?
Churchill Downs' earnings per share growth have been climbing higher at an appreciable rate. The icing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Churchill Downs deserves timely attention. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Churchill Downs (1 is a bit concerning) you should be aware of.
Keen growth investors love to see insider buying. Thankfully, Churchill Downs 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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