Stock Analysis

I Ran A Stock Scan For Earnings Growth And Sun Life Financial (TSE:SLF) Passed With Ease

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TSX:SLF
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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. 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.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Sun Life Financial (TSE:SLF). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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

How Fast Is Sun Life Financial Growing?

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). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years Sun Life Financial grew its EPS by 11% per year. That's a good rate of growth, if it can be sustained.

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. 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. Sun Life Financial maintained stable EBIT margins over the last year, all while growing revenue 10% to CA$38b. That's progress.

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 June 25th 2021

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 the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

First things first; I didn't see insiders sell Sun Life Financial shares in the last year. But the really good news is that Independent Corporate Director Stephanie Coyles spent CA$362k buying stock stock, at an average price of around CA$61.43. Big buys like that give me a sense of opportunity; actions speak louder than words.

Should You Add Sun Life Financial To Your Watchlist?

As I already mentioned, Sun Life Financial is a growing business, which is what I like to see. While some companies are struggling to grow EPS, Sun Life Financial seems free from that morose affliction. The icing on the cake is that an insider bought shares during the year, which inclines me to put this one on a watchlist. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Sun Life Financial is trading on a high P/E or a low P/E, relative to its industry.

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.

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