Do Kirkland Lake Gold's (TSE:KL) Earnings Warrant Your Attention?

By
Simply Wall St
Published
August 01, 2021
TSX:KL
Source: Shutterstock

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. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Kirkland Lake Gold (TSE:KL). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Kirkland Lake Gold

How Quickly Is Kirkland Lake Gold Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. I, for one, am blown away by the fact that Kirkland Lake Gold has grown EPS by 45% per year, over the last three years. That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens. It's also worth noting that the EPS growth has been assisted by share buybacks, indicating the company is in a position to return capital to shareholders.

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. On the one hand, Kirkland Lake Gold's EBIT margins fell over the last year, but on the other hand, revenue grew. So it seems the future my hold further growth, especially if EBIT margins can stabilize.

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.

earnings-and-revenue-history
TSX:KL Earnings and Revenue History August 2nd 2021

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Kirkland Lake Gold EPS 100% free.

Are Kirkland Lake Gold 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. 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 -US$146k worth of shares. But that's far less than the US$1.6m insiders spend purchasing stock. This makes me even more interested in Kirkland Lake Gold because it suggests that those who understand the company best, are optimistic. It is also worth noting that it was Independent Director Ingrid Hibbard who made the biggest single purchase, worth CA$793k, paying CA$49.73 per share.

It's reassuring that Kirkland Lake Gold insiders are buying the stock, but that's not the only reason to think management are fair to shareholders. I refer to the very reasonable level of CEO pay. I discovered that the median total compensation for the CEOs of companies like Kirkland Lake Gold, with market caps over US$8.0b, is about US$6.3m.

Kirkland Lake Gold offered total compensation worth US$5.5m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.

Is Kirkland Lake Gold Worth Keeping An Eye On?

Kirkland Lake Gold's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The company can also boast of insider buying, and reasonable remuneration for the CEO. The strong EPS growth suggests Kirkland Lake Gold may be at an inflection point. For those chasing fast growth, then, I'd suggest to stock merits monitoring. You should always think about risks though. Case in point, we've spotted 1 warning sign for Kirkland Lake Gold you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Kirkland Lake Gold, 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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