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 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 STORE Capital (NYSE:STOR). While profit is not necessarily a social good, it’s easy to admire a business that 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.
Check out our latest analysis for STORE Capital
How Fast Is STORE Capital 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. We can see that in the last three years STORE Capital grew its EPS by 4.6% per year. While that sort of growth rate isn’t amazing, it does show the business is growing.
One way to double-check a company’s growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. I note that STORE Capital’s revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note STORE Capital’s EBIT margins were flat over the last year, revenue grew by a solid 13% to US$683m. 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, click on the image.
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 STORE Capital’s future profits.
Are STORE Capital Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That’s because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
The good news is that STORE Capital insiders spent a whopping US$1.8m on stock in just one year, and I didn’t see any selling. As if for a flower bud approaching bloom, I become an expectant observer, anticipating with hope, that something splendid is coming. We also note that it was the Independent Director, Joseph Donovan, who made the biggest single acquisition, paying US$374k for shares at about US$37.42 each.
Along with the insider buying, another encouraging sign for STORE Capital is that insiders, as a group, have a considerable shareholding. With a whopping US$56m 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.
Should You Add STORE Capital To Your Watchlist?
As I already mentioned, STORE Capital is a growing business, which is what I like to see. On top of that, we’ve seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist – and arguably a research priority. Still, you should learn about the 4 warning signs we’ve spotted with STORE Capital (including 1 which is concerning) .
As a growth investor I do like to see insider buying. But STORE Capital isn’t the only one. You can see a 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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