Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 Equity LifeStyle Properties (NYSE:ELS), 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.
How Quickly Is Equity LifeStyle Properties Increasing Earnings Per Share?
As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Equity LifeStyle Properties managed to grow EPS by 17% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company’s growth. Not all of Equity LifeStyle Properties’s revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I’ve used might not be the best representation of the underlying business. While we note Equity LifeStyle Properties’s EBIT margins were flat over the last year, revenue grew by a solid 5.2% to US$1.0b. That’s progress.
The chart below shows how the company’s bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
Fortunately, we’ve got access to analyst forecasts of Equity LifeStyle Properties’s future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Equity LifeStyle Properties Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$13b company like Equity LifeStyle Properties. But we do take comfort from the fact that they are investors in the company. Notably, they have an enormous stake in the company, worth US$273m. This suggests to me that leadership will be very mindful of shareholders’ interests when making decisions!
It’s good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Equity LifeStyle Properties, with market caps over US$8.0b, is about US$11m.
The CEO of Equity LifeStyle Properties only received US$4.2m in total compensation for the year ending December 2018. That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. I’d also argue reasonable pay levels attest to good decision making more generally.
Does Equity LifeStyle Properties Deserve A Spot On Your Watchlist?
One positive for Equity LifeStyle Properties is that it is growing EPS. That’s nice to see. The fact that EPS is growing is a genuine positive for Equity LifeStyle Properties, but the pretty picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, I’d argue this one is worthy of the watchlist, at least. Now, you could try to make up your mind on Equity LifeStyle Properties by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
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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