For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like TC Energy (TSE:TRP). 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. 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.
TC Energy’s Improving Profits
In the last three years TC Energy’s earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn’t tell us much. As a result, I’ll zoom in on growth over the last year, instead. Like a wedge-tailed eagle on the wind, TC Energy’s EPS soared from CA$3.38 to CA$4.52, in just one year. That’s a commendable gain of 34%.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. TC Energy shareholders can take confidence from the fact that EBIT margins are up from 37% to 44%, and revenue is growing. That’s great to see, on both counts.
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 TC Energy’s future profits.
Are TC Energy Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
We do note that, in the last year, insiders sold -CA$1.2m worth of shares. But that’s far less than the CA$2.7m insiders spend purchasing stock. This makes me even more interested in TC Energy because it suggests that those who understand the company best, are optimistic. We also note that it was the Executive VP & President of U.S. Natural Gas Pipelines, Stanley Chapman, who made the biggest single acquisition, paying CA$557k for shares at about CA$44.89 each.
On top of the insider buying, it’s good to see that TC Energy insiders have a valuable investment in the business. To be specific, they have CA$57m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that’s only about 0.09% of the company, it’s enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Is TC Energy Worth Keeping An Eye On?
You can’t deny that TC Energy has grown its earnings per share at a very impressive rate. That’s attractive. On top of that, insiders own a significant stake in the company and have been buying more shares. So I do think this is one stock worth watching. If you think TC Energy might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of TC Energy, 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
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.