Do Exelixis’s (NASDAQ:EXEL) Earnings Warrant Your Attention?

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 their study titled Who Falls Prey to the Wolf of Wall Street?’ Leuz et. al. found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Exelixis (NASDAQ:EXEL). While profit is not necessarily a social good, it’s easy to admire a business than can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for Exelixis

Exelixis’s Improving Profits

Over the last three years, Exelixis has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don’t think the percent growth rate is particularly meaningful. Thus, it makes sense to focus on more recent growth rates, instead. Like the last firework on New Year’s Eve accelerating into the sky, Exelixis’s EPS shot from US$1.09 to US$2.14, over the last year. Year on year growth of 96% is certainly a sight to behold.

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). While Exelixis did well to grow revenue over the last year, EBIT margins were dampened at the same time. So it seems the future my hold further growth, especially if EBIT margins can stabilize.

NasdaqGS:EXEL Income Statement, August 17th 2019
NasdaqGS:EXEL Income Statement, August 17th 2019

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Exelixis EPS 100% free.

Are Exelixis Insiders Aligned With All Shareholders?

Since Exelixis has a market capitalization of US$6.6b, we wouldn’t expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. With a whopping US$86m worth of shares as a group, insiders have plenty riding on the company’s success. That’s certainly enough to make me think that management will be very focussed on long term growth.

Is Exelixis Worth Keeping An Eye On?

Exelixis’s earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So to my mind Exelixis is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. 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 Exelixis. You might benefit from giving it a glance today.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction

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