Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 Canadian Apartment Properties Real Estate Investment Trust (TSE:CAR.UN). While profit is not necessarily a social good, it’s easy to admire a business than can consistently produce it. 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.
Canadian Apartment Properties Real Estate Investment Trust’s Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Who among us would not applaud Canadian Apartment Properties Real Estate Investment Trust’s stratospheric annual EPS growth of 43%, compound, over the last three years? While that sort of growth rate isn’t sustainable for long, it certainly catches my attention; like a glint in the eye of my lover.
One way to double-check a company’s growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note Canadian Apartment Properties Real Estate Investment Trust’s EBIT margins were flat over the last year, revenue grew by a solid 7.8% to CA$689m. That’s a real positive.
The chart below shows how the company’s bottom and top lines have progressed over time. For finer detail, click on the image.
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 Canadian Apartment Properties Real Estate Investment Trust EPS 100% free.
Are Canadian Apartment Properties Real Estate Investment Trust Insiders Aligned With All Shareholders?
Since Canadian Apartment Properties Real Estate Investment Trust has a market capitalization of CA$7.3b, we wouldn’t expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. To be specific, they have CA$46m worth of shares. That’s a lot of money, and no small incentive to work hard. Even though that’s only about 0.6% of the company, it’s enough money to indicate alignment between the leaders of the business and ordinary shareholders.
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Canadian Apartment Properties Real Estate Investment Trust with market caps between CA$5.4b and CA$16b is about CA$5.4m.
The CEO of Canadian Apartment Properties Real Estate Investment Trust only received CA$1.6m in total compensation for the year ending December 2017. That’s clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. 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. It can also be a sign of a culture of integrity, in a broader sense.
Does Canadian Apartment Properties Real Estate Investment Trust Deserve A Spot On Your Watchlist?
Canadian Apartment Properties Real Estate Investment Trust’s earnings have taken off like any random crypto-currency did, back in 2017. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The sharp increase in earnings could signal good business momentum. Canadian Apartment Properties Real Estate Investment Trust certainly ticks a few of my boxes, so I think it’s probably well worth further consideration. If you think Canadian Apartment Properties Real Estate Investment Trust might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.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 email@example.com. 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.