Like a puppy chasing its tail, some new investors often chase ‘the next big thing’, even if that means buying ‘story stocks’ without revenue, let alone 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.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in MGM Growth Properties (NYSE:MGP). 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 MGM Growth Properties 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. I, for one, am blown away by the fact that MGM Growth Properties has grown EPS by 46% per year, over the last three years. That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.
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. I note that MGM Growth Properties’s revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. The good news is that MGM Growth Properties is growing revenues, and EBIT margins improved by 4.3 percentage points to 54%, over the last year. That’s great to see, on both counts.
The chart below shows how the company’s bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
You don’t drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for MGM Growth Properties’s future profits.
Are MGM Growth Properties Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That’s because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
MGM Growth Properties top brass are certainly in sync, not having sold any shares, over the last year. But the bigger deal is that the Independent Director, Robert Smith, paid US$62k to buy shares at an average price of US$31.14.
Along with the insider buying, another encouraging sign for MGM Growth Properties is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$14m worth of its stock. That’s a lot of money, and no small incentive to work hard. Despite being just 0.1% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That’s because on our analysis the CEO, James Stewart, is paid less than the median for similar sized companies. For companies with market capitalizations over US$8.0b, like MGM Growth Properties, the median CEO pay is around US$11m.
The CEO of MGM Growth Properties only received US$3.5m in total compensation for the year ending December 2018. That’s clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. 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. It can also be a sign of good governance, more generally.
Does MGM Growth Properties Deserve A Spot On Your Watchlist?
MGM Growth Properties’s earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The incing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe MGM Growth Properties deserves timely attention. Now, you could try to make up your mind on MGM Growth 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.
The good news is that MGM Growth Properties is not the only growth stock with insider buying. Here’s a list of them… 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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