Is Now The Time To Put Medibank Private (ASX:MPL) On Your Watchlist?

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. 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 Medibank Private (ASX:MPL). 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. 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.

See our latest analysis for Medibank Private

How Fast Is Medibank Private Growing?

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 means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Medibank Private grew its EPS by 5.1% per year. While that sort of growth rate isn't amazing, it does show the business is growing.

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 Medibank Private'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 Medibank Private's EBIT margins were flat over the last year, revenue grew by a solid 4.4% to AU$7.1b. That's progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

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

Are Medibank Private 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. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Like a sturdy phalanx Medibank Private insiders have stood united by refusing to sell shares over the last year. But the bigger deal is that the Independent Non-Executive Director, Gerard Dalbosco, paid AU$151k to buy shares at an average price of AU$3.11.

It's reassuring that Medibank Private insiders are buying the stock, but that's not the only reason to think management are fair to shareholders. I refer to the very reasonable level of CEO pay. For companies with market capitalizations between AU$5.6b and AU$17b, like Medibank Private, the median CEO pay is around AU$3.5m.

The Medibank Private CEO received AU$2.1m in compensation for the year ending . That seems pretty reasonable, especially given its below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Is Medibank Private Worth Keeping An Eye On?

One important encouraging feature of Medibank Private is that it is growing profits. And that's not all, folks. We've also seen insiders buying stock, and noted modest executive pay. If that doesn't automatically earn it a spot on your watchlist then I'd posit it warrants a closer look at the very least. We should say that we've discovered 1 warning sign for Medibank Private that you should be aware of before investing here.

The good news is that Medibank Private 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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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.