Here's Why We Think Washington H. Soul Pattinson (ASX:SOL) Is Well Worth Watching

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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

So if you're like me, you might be more interested in profitable, growing companies, like Washington H. Soul Pattinson (ASX:SOL). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for Washington H. Soul Pattinson

How Quickly Is Washington H. Soul Pattinson 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). That makes EPS growth an attractive quality for any company. I, for one, am blown away by the fact that Washington H. Soul Pattinson has grown EPS by 43% per year, over the last three years. Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). I note that, last year, Washington H. Soul Pattinson's revenue from operations was lower than its revenue, so that could distort my analysis of its margins. To cut to the chase Washington H. Soul Pattinson's EBIT margins dropped last year, and so did its revenue. That is, not a hint of euphemism here, suboptimal.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

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 Washington H. Soul Pattinson EPS 100% free.

Are Washington H. Soul Pattinson Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Although we did see some insider selling (worth -AU$425k) this was overshadowed by a mountain of buying, totalling AU$9.3m in just one year. I find this encouraging because it suggests they are optimistic about the Washington H. Soul Pattinson's future. Zooming in, we can see that the biggest insider purchase was by MD, CEO & Executive Director Todd Barlow for AU$3.0m worth of shares, at about AU$28.98 per share.

The good news, alongside the insider buying, for Washington H. Soul Pattinson bulls is that insiders (collectively) have a meaningful investment in the stock. Notably, they have an enormous stake in the company, worth AU$473m. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.

Does Washington H. Soul Pattinson Deserve A Spot On Your Watchlist?

Washington H. Soul Pattinson's earnings per share have taken off like a rocket aimed right at the moon. What's more insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Washington H. Soul Pattinson deserves timely attention. We should say that we've discovered 1 warning sign for Washington H. Soul Pattinson that you should be aware of before investing here.

As a growth investor I do like to see insider buying. But Washington H. Soul Pattinson 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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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. 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.
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