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 Warren Buffett has mused, ‘If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.’ When they buy such story stocks, investors are all too often the patsy.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in EPR Properties (NYSE:EPR). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Fast Is EPR Properties Growing Its Earnings Per Share?
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. It’s good to see that EPR Properties’s EPS have grown from US$2.98 to US$3.39 over twelve months. I doubt many would complain about that 14% gain.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. I note that EPR Properties’s revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While EPR Properties 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.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. For finer detail check this interactive graph.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of EPR Properties’s forecast profits?
Are EPR Properties Insiders Aligned With All Shareholders?
Since EPR Properties has a market capitalization of US$6.0b, 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$77m 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.
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I’d say they are indeed. I discovered that the median total compensation for the CEOs of companies like EPR Properties with market caps between US$4.0b and US$12b is about US$6.8m.
EPR Properties offered total compensation worth US$5.1m to its CEO in the year to December 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn’t a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I’d also argue reasonable pay levels attest to good decision making more generally.
Should You Add EPR Properties To Your Watchlist?
One positive for EPR Properties is that it is growing EPS. That’s nice to see. Earnings growth might be the main game for EPR Properties, but the fun does not stop there. Boasting both modest CEO pay and considerable insider ownership, I’d argue this one is worthy of the watchlist, at least. Of course, just because EPR Properties is growing does not mean it is undervalued. If you’re wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to 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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