For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
In contrast to all that, I prefer to spend time on companies like HCA Healthcare (NYSE:HCA), 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. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Fast Is HCA Healthcare Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It’s no surprise, then, that I like to invest in companies with EPS growth. Impressively, HCA Healthcare has grown EPS by 21% per year, compound, in the last three years. If the company can sustain that sort of growth, we’d expect shareholders to come away winners.
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. HCA Healthcare maintained stable EBIT margins over the last year, all while growing revenue 8.0% to US$49b. That’s a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time. 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 HCA Healthcare’s forecast profits?
Are HCA Healthcare Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$43b company like HCA Healthcare. 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$686m. This suggests to me that leadership will be very mindful of shareholders’ interests when making decisions!
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. For companies with market capitalizations over US$8.0b, like HCA Healthcare, the median CEO pay is around US$11m.
HCA Healthcare offered total compensation worth US$10.0m to its CEO in the year to December 2018. That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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. It can also be a sign of good governance, more generally.
Does HCA Healthcare Deserve A Spot On Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about HCA Healthcare’s strong EPS growth. If that’s not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. Each to their own, but I think all this makes HCA Healthcare look rather interesting indeed. While we’ve looked at the quality of the earnings, we haven’t yet done any work to value the stock. So if you like to buy cheap, you may want to check if HCA Healthcare is trading on a high P/E or a low P/E, relative to its industry.
Although HCA Healthcare certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you’re looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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