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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 . 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 Trustmark (NASDAQ:TRMK), 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. 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.
Trustmark's Earnings Per Share Are Growing.
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Trustmark has grown EPS by 9.0% per year. That's a good rate of growth, if it can be sustained.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). I note that Trustmark's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Trustmark reported flat revenue and EBIT margins over the last year. That's not a major concern but nor does it point to the long term growth we like to see.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Trustmark?
Are Trustmark 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 Trustmark insiders have a significant amount of capital invested in the stock. Indeed, they hold US$34m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 1.5%, the value of that investment is enough to show insiders have plenty riding on the venture.
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. For companies with market capitalizations between US$1.0b and US$3.2b, like Trustmark, the median CEO pay is around US$4.0m.
Trustmark offered total compensation worth US$2.4m to its CEO in the year to December 2018. That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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. It can also be a sign of a culture of integrity, in a broader sense.
Is Trustmark Worth Keeping An Eye On?
As I already mentioned, Trustmark is a growing business, which is what I like to see. Earnings growth might be the main game for Trustmark, but the fun does not stop there. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Trustmark. You might benefit from giving it a glance today.
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
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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.