Like a puppy chasing its tail, some new investors often chase “the next big thing,” even if that means buying “history stocks” with no income, let alone profit. Unfortunately, high-risk investments are often unlikely to pay off, and many investors pay a price to learn their lesson.
Contrary to all this, I prefer to spend time on companies like Markel (NYSE: MKL), which not only has revenue, but also profits. While profit isn’t necessarily social good, it’s easy to admire a business that can consistently produce it. 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.
See our latest analysis for Markel
How fast is Markel growing?
The market is a short-term voting machine, but a long-term weighing machine, so the stock price eventually follows earnings per share (EPS). This means that growing EPS is seen as a real benefit by most successful long-term investors. It’s certainly nice to see that Markel has managed to increase his EPS by 33% per year over three years. If the company can support this kind of growth, we expect shareholders to come out ahead.
I like to see top line growth as an indication that growth is sustainable, and I look for a high profit margin before interest and taxes (EBIT) to indicate a competitive gap (although some companies with low margins also have ditches). I note that Markel’s income operations was lower than its turnover for the last twelve months, which could skew my analysis of its margins. Markel shareholders can rely on the fact that EBIT margins are up 9.9% to 26% and revenue is increasing. Checking those two boxes is a good sign of growth in my book.
The graph below shows how the company’s bottom line has progressed over time. To see the actual numbers, click on the graph.
You don’t drive with your eyes on the rearview mirror, so this may be of more interest to you free report showing analyst forecasts for Markel’s future profits.
Are Markel Insiders Aligned With All Shareholders?
We wouldn’t expect to see insiders owning a significant percentage of a US $ 17 billion company like Markel. But we are reassured by the fact that they have invested in the company. In particular, they own a huge stake in the company, worth $ 372 million. This suggests to me that management will be very attentive to the interests of shareholders when making a decision!
It’s good to see insiders invested in the company, but are the pay levels reasonable? Well, based on CEO pay, I would say they are indeed. I found that the median total compensation of CEOs of companies like Markel, with market caps over $ 8.0 billion, is around $ 11 million.
Markel’s CEO received total compensation of just US $ 4.2 million in the year to. This is clearly well below par, so at first glance this arrangement seems generous to shareholders and indicates a culture of modest compensation. Although the level of CEO compensation is not a big factor in my view of the company, modest compensation is positive because it suggests that the board has the interests of shareholders in mind. I would also say that reasonable pay levels are a testament to good decision making more generally.
Should you add Markel to your watchlist?
You cannot deny that Markel has increased his earnings per share at a very impressive rate. It is attractive. If that’s not enough, also consider that the CEO’s compensation is quite reasonable and that insiders are well invested alongside other shareholders. Everyone has their own tastes, but I think all of this makes Markel quite interesting indeed. It is also necessary to consider the ever-present specter of investment risk. We have identified 2 warning signs with Markel (at least 1 which is a bit worrying), and understanding them should be part of your investment process.
You can invest in any business. But if you’d rather focus on stocks that have been the subject of insider buys, here’s a list of companies that have made insider buys in the past three months.
Please note that the insider trading discussed in this article refers to reportable trades in the relevant jurisdiction.
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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 any stock 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.