Stock Analysis

If EPS Growth Is Important To You, Macquarie Group (ASX:MQG) Presents An Opportunity

ASX:MQG
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It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Macquarie Group (ASX:MQG). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

View our latest analysis for Macquarie Group

How Quickly Is Macquarie Group Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that Macquarie Group has managed to grow EPS by 20% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. It's noted that Macquarie Group's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Macquarie Group maintained stable EBIT margins over the last year, all while growing revenue 10.0% to AU$19b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
ASX:MQG Earnings and Revenue History June 29th 2023

Fortunately, we've got access to analyst forecasts of Macquarie Group's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Macquarie Group Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Despite AU$51k worth of sales, Macquarie Group insiders have overwhelmingly been buying the stock, spending AU$606k on purchases in the last twelve months. This overall confidence in the company at current the valuation signals their optimism. Zooming in, we can see that the biggest insider purchase was by company insider Ian Saines for AU$179k worth of shares, at about AU$179 per share.

The good news, alongside the insider buying, for Macquarie Group bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a considerable amount of wealth invested in it, currently valued at AU$389m. This comes in at 0.6% of shares in the company, which is a fair amount of a business of this size. This should still be a great incentive for management to maximise shareholder value.

Is Macquarie Group Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Macquarie Group's strong EPS growth. Furthermore, company insiders have been adding to their significant stake in the company. These things considered, this is one stock worth watching. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Macquarie Group (1 is a bit unpleasant) you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Macquarie Group, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Valuation is complex, but we're helping make it simple.

Find out whether Macquarie Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.