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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
In contrast to all that, I prefer to spend time on companies like Manulife Financial (TSE:MFC), which has not only revenues, but also profits. 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. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.
How Quickly Is Manulife Financial Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Manulife Financial has grown EPS by 31% 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 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 Manulife Financial’s revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While revenue is looking a bit flat, the good news is EBIT margins improved by 7.6 percentage points to 15%, in the last twelve months. That’s something to smile about.
Fortunately, we’ve got access to analyst forecasts of Manulife Financial’s future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Manulife Financial 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. However, insiders are sometimes wrong, and we don’t know the exact thinking behind their acquisitions.
Over the last 12 months Manulife Financial insiders spent CA$212k more buying shares than they received from selling them. Although I don’t particularly like to see selling, the fact that they put more capital in, than they extracted, is a positive in my mind. It is also worth noting that it was Director Claude Prieur who made the biggest single purchase, worth CA$942k, paying CA$20.93 per share.
The good news, alongside the insider buying, for Manulife Financial bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold CA$21m worth of its stock. That’s a lot of money, and no small incentive to work hard. Despite being just 0.04% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Should You Add Manulife Financial To Your Watchlist?
You can’t deny that Manulife Financial 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. Now, you could try to make up your mind on Manulife Financial by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
The good news is that Manulife Financial 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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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.