It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Great-West Lifeco (TSE:GWO). 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.
How Quickly Is Great-West Lifeco 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 means EPS growth is considered a real positive by most successful long-term investors. Great-West Lifeco managed to grow EPS by 13% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.
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. Not all of Great-West Lifeco's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. While we note Great-West Lifeco's EBIT margins were flat over the last year, revenue grew by a solid 36% to CA$61b. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Great-West Lifeco's forecast profits?
Are Great-West Lifeco Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Despite -CA$2.4m worth of sales, Great-West Lifeco insiders have overwhelmingly been buying the stock, spending CA$3.1m on purchases in the last twelve months. You could argue that level of buying implies genuine confidence in the business. It is also worth noting that it was President Paul Mahon who made the biggest single purchase, worth CA$1.8m, paying CA$27.16 per share.
Along with the insider buying, another encouraging sign for Great-West Lifeco is that insiders, as a group, have a considerable shareholding. To be specific, they have CA$26m 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 Great-West Lifeco Worth Keeping An Eye On?
As I already mentioned, Great-West Lifeco is a growing business, which is what I like to see. Better yet, insiders are significant shareholders, and have been buying more shares. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. Before you take the next step you should know about the 2 warning signs for Great-West Lifeco (1 doesn't sit too well with us!) that we have uncovered.
The good news is that Great-West Lifeco 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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