Here's Why We Think Stantec (TSE:STN) Is Well Worth Watching

By
Simply Wall St
Published
December 02, 2020
TSX:STN
Source: Shutterstock

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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

So if you're like me, you might be more interested in profitable, growing companies, like Stantec (TSE:STN). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for Stantec

How Fast Is Stantec Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Stantec has grown EPS by 18% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Stantec's EBIT margins were flat over the last year, revenue grew by a solid 2.1% to CA$3.7b. That's a real positive.

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.

earnings-and-revenue-history
TSX:STN Earnings and Revenue History December 2nd 2020

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 Stantec's future profits.

Are Stantec 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Despite -CA$593k worth of sales, Stantec insiders have overwhelmingly been buying the stock, spending CA$1.5m on purchases in the last twelve months. On balance, to me, this signals their optimism. We also note that it was the President, Gordon Johnston, who made the biggest single acquisition, paying CA$435k for shares at about CA$43.48 each.

On top of the insider buying, it's good to see that Stantec insiders have a valuable investment in the business. To be specific, they have CA$22m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 0.5% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Is Stantec Worth Keeping An Eye On?

You can't deny that Stantec has grown its earnings per share at a very impressive rate. That's attractive. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So I do think this is one stock worth watching. Of course, just because Stantec 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.

The good news is that Stantec 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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