It’s only natural that many investors, especially those who are new to the game, prefer to buy shares in ‘sexy’ stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’
In contrast to all that, I prefer to spend time on companies like Thermo Fisher Scientific (NYSE:TMO), which has not only revenues, but also profits. Now, I’m not saying that the stock is necessarily undervalued today; but I can’t shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.
How Fast Is Thermo Fisher Scientific Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Thermo Fisher Scientific has managed to grow EPS by 21% per year over three years. If the company can sustain that sort of growth, we’d expect shareholders to come away winners.
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. While we note Thermo Fisher Scientific’s EBIT margins were flat over the last year, revenue grew by a solid 7.7% to US$25b. That’s a real positive.
You can take a look at the company’s revenue and earnings growth trend, in the chart below.
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 Thermo Fisher Scientific?
Are Thermo Fisher Scientific Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$117b company like Thermo Fisher Scientific. But we are reassured by the fact they have invested in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$238m. This suggests to me that leadership will be very mindful of shareholders’ interests when making decisions!
Is Thermo Fisher Scientific Worth Keeping An Eye On?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Thermo Fisher Scientific’s strong EPS growth. Further, the high level of insider buying impresses me, and suggests that I’m not the only one who appreciates the EPS growth. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Thermo Fisher Scientific.
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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