- Oops!Something went wrong.Please try again later.
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.
In contrast to all that, I prefer to spend time on companies like Washington H. Soul Pattinson (ASX:SOL), 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. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Washington H. Soul Pattinson'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). It's no surprise, then, that I like to invest in companies with EPS growth. Who among us would not applaud Washington H. Soul Pattinson's stratospheric annual EPS growth of 43%, compound, over the last three years? Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.
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, last year, Washington H. Soul Pattinson's revenue from operations was lower than its revenue, so that could distort my analysis of its margins. Unfortunately, revenue is down and so are margins. That will not make it easy to grow profits, to say the least.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
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 Washington H. Soul Pattinson?
Are Washington H. Soul Pattinson Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Although we did see some insider selling (worth -AU$425k) this was overshadowed by a mountain of buying, totalling AU$9.3m in just one year. This makes me even more interested in Washington H. Soul Pattinson because it suggests that those who understand the company best, are optimistic. It is also worth noting that it was MD, CEO & Executive Director Todd Barlow who made the biggest single purchase, worth AU$3.0m, paying AU$28.98 per share.
On top of the insider buying, it's good to see that Washington H. Soul Pattinson insiders have a valuable investment in the business. Indeed, they have a glittering mountain of wealth invested in it, currently valued at AU$621m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
Does Washington H. Soul Pattinson Deserve A Spot On Your Watchlist?
Washington H. Soul Pattinson's earnings have taken off like any random crypto-currency did, back in 2017. What's more insiders own a significant stake in the company and have been buying more shares. Because of the potential that it has reached an inflection point, I'd suggest Washington H. Soul Pattinson belongs on the top of your watchlist. It is worth noting though that we have found 1 warning sign for Washington H. Soul Pattinson that you need to take into consideration.
As a growth investor I do like to see insider buying. But Washington H. Soul Pattinson 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.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.