Stock Analysis

Here's Why We Think Sun Life Financial (TSE:SLF) Is Well Worth Watching

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TSX:SLF
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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. 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.

In contrast to all that, I prefer to spend time on companies like Sun Life Financial (TSE:SLF), 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.

See our latest analysis for Sun Life Financial

Sun Life Financial's Earnings Per Share Are Growing.

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. It certainly is nice to see that Sun Life Financial has managed to grow EPS by 17% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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. I note that Sun Life Financial's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Unfortunately, Sun Life Financial's revenue dropped 18% last year, but the silver lining is that EBIT margins improved from 7.8% to 14%. That falls short of ideal.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
TSX:SLF Earnings and Revenue History May 5th 2022

Fortunately, we've got access to analyst forecasts of Sun Life 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 Sun Life 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

It's a pleasure to note that insiders spent CA$1.6m buying Sun Life Financial shares, over the last year, without reporting any share sales whatsoever. As if for a flower bud approaching bloom, I become an expectant observer, anticipating with hope, that something splendid is coming. We also note that it was the , Ingrid Johnson, who made the biggest single acquisition, paying CA$1.5m for shares at about CA$71.01 each.

Does Sun Life Financial Deserve A Spot On Your Watchlist?

For growth investors like me, Sun Life Financial's raw rate of earnings growth is a beacon in the night. The growth rate whets my appetite for research, and the insider buying only increases my interest in the stock. To put it succinctly; Sun Life Financial is a strong candidate for your watchlist. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Sun Life Financial that you should be aware of.

The good news is that Sun Life 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.

Valuation is complex, but we're helping make it simple.

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