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 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.
In contrast to all that, I prefer to spend time on companies like NorthWestern (NYSE:NWE), which has not only revenues, but also profits. While profit is not necessarily a social good, it’s easy to admire a business than can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Check out our latest analysis for NorthWestern
NorthWestern’s Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. NorthWestern managed to grow EPS by 12% per year, over three years. That’s a good rate of growth, if it can be sustained.
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 NorthWestern’s EBIT margins are down, it’s not all bad news as revenues are, at least, stable. That doesn’t inspire a great deal of confidence.
While we live in the present moment at all times, there’s no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for NorthWestern?
Are NorthWestern Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that NorthWestern insiders have a significant amount of capital invested in the stock. Indeed, they hold US$28m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that’s only about 0.8% of the company, it’s enough money to indicate alignment between the leaders of the business and ordinary shareholders.
It’s good to see that insiders are invested in the company, but are remuneration levels reasonable? 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 NorthWestern with market caps between US$2.0b and US$6.4b is about US$5.1m.
The NorthWestern CEO received US$3.2m in compensation for the year ending December 2018. That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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 a culture of integrity, in a broader sense.
Should You Add NorthWestern To Your Watchlist?
One positive for NorthWestern is that it is growing EPS. That’s nice to see. The fact that EPS is growing is a genuine positive for NorthWestern, 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. Of course, just because NorthWestern 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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