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. 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 Leidos Holdings (NYSE:LDOS). While profit is not necessarily a social good, it’s easy to admire a business than can consistently produce it. 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 Leidos Holdings 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. Like a wedge-tailed eagle on the wind, Leidos Holdings’s EPS soared from US$2.90 to US$4.49, in just one year. That’s a impressive gain of 55%.
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. While we note Leidos Holdings’s EBIT margins were flat over the last year, revenue grew by a solid 5.4% to US$11b. That’s a real positive.
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 Leidos Holdings EPS 100% free.
Are Leidos Holdings Insiders Aligned With All Shareholders?
Since Leidos Holdings has a market capitalization of US$12b, 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$74m worth of shares as a group, insiders have plenty riding on the company’s success. This should keep them focused on creating long term value for shareholders.
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 Leidos Holdings, with market caps over US$8.0b, is about US$11m.
Leidos Holdings offered total compensation worth US$9.8m to its CEO in the year to December 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. 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 a culture of integrity, in a broader sense.
Does Leidos Holdings Deserve A Spot On Your Watchlist?
For growth investors like me, Leidos Holdings’s raw rate of earnings growth is a beacon in the night. 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 Leidos Holdings look rather interesting indeed. If you think Leidos Holdings might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.
Although Leidos Holdings 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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.