It’s only natural that many investors, especially those new to the game, would rather buy “hot” stocks with a good story, even if those companies are losing money. But the reality is that when a business loses money every year, for long enough, its investors will usually take their share of those losses.
If, on the other hand, you like businesses that have revenue, and even profits, then you might be interested in Great-West Lifeco (EAST: GWO). Now, I’m not saying the stock is necessarily undervalued today; but I cannot shake an appreciation of the profitability of the company itself. While a well-funded business can suffer losses for years, unless its owners have an endless appetite to subsidize the customer, it will eventually have to generate a profit, or else take its last breath.
How fast is Great-West Lifeco growing?
As one of my mentors once told me, the stock price tracks earnings per share (EPS). So it’s no surprise that I like to invest in companies with growing EPS. Over the past three years, Great-West Lifeco has increased its EPS by 11% per year. This growth rate is good enough, assuming the business can sustain it.
A close look at revenue growth and profit before interest and tax (EBIT) margins can help shed light on the sustainability of recent earnings growth. Not all Great-West Lifeco’s income this year is income operations, so keep in mind that the revenue and margin numbers I used may not be the best representation of the underlying business. Great-West Lifeco has maintained stable EBIT margins over the past year, while increasing revenues 8.3% to C $ 60 billion. It’s really positive.
The graph below shows how the company’s bottom line has progressed over time. For more details, click on the image.
In investing, as in life, the future matters more than the past. So why not watch this free Great-West Lifeco interactive visualization forecast profits?
Are Great-West Lifeco Insiders Aligned with All Shareholders?
Like that fresh smell in the air when the rains come, insider buying fills me with optimistic anticipation. This is because insider buying often indicates that those closest to the company are confident that the stock price will perform well. Small purchases aren’t always indicative of conviction, however, and insiders don’t always make the right choices.
While we saw insider sales (worth C $ 2.8 million), this was overshadowed by a mountain of buying, totaling C $ 3.9 million in just one year. This interests me even more for Great-West Lifeco, as it suggests that those who understand the business best are optimistic. We also note that it was the chairman, Paul Mahon, who made the largest acquisition, paying C $ 1.8 million for shares at around C $ 27.16 each.
The good news, aside from insider buying, for Great-West Lifeco bulls is that insiders (collectively) have a significant investment in the stock. In fact, they hold C $ 32 million worth of its shares. This shows strong buy-in and may indicate a belief in business strategy. Although it only represents 0.09% of the business, the value of this investment is enough to show that insiders have a lot going on in the business.
Should You Add Great-West Lifeco to Your Watchlist?
One of the encouraging features of Great-West Lifeco is that it is increasing its profits. Better yet, insiders are large shareholders and have bought more shares. This makes the company a prime candidate for my watchlist – and arguably a research priority. While we’ve looked at the quality of the earnings, we haven’t done any work to assess the stock yet. So if you like to buy cheap you might want check if Great-West Lifeco is trading high price / earnings or low price / earnings, compared to its industry.
There are many other companies that have insiders who buy stocks. So if you love the sound of Great-West Lifeco, you’ll probably love this free list of growing companies that insiders buy.
Please note that the insider trading discussed in this article refers to reportable trades in the relevant jurisdiction.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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