Stock Analysis

Is Now The Time To Put Aritzia (TSE:ATZ) On Your Watchlist?

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TSX:ATZ
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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 currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Aritzia (TSE:ATZ). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Aritzia with the means to add long-term value to shareholders.

Check out the opportunities and risks within the CA Specialty Retail industry.

How Quickly Is Aritzia Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shareholders will be happy to know that Aritzia's EPS has grown 28% each year, compound, over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While Aritzia did well to grow revenue over the last year, EBIT margins were dampened at the same time. If EBIT margins are able to stay balanced and this revenue growth continues, then we should see brighter days ahead.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

earnings-and-revenue-history
TSX:ATZ Earnings and Revenue History December 6th 2022

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Aritzia's future profits.

Are Aritzia Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, 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.

One shining light for Aritzia is the serious outlay one insider has made to buy shares, in the last year. Specifically, the Independent Director, Aldo Bensadoun, accumulated CA$5.0m worth of shares at a price of CA$37.63. Big insider buys like that are a rarity and should prompt discussion on the merits of the business.

The good news, alongside the insider buying, for Aritzia bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a considerable amount of wealth invested in it, currently valued at CA$1.0b. This totals to 19% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. Looking very optimistic for investors.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because on our analysis the CEO, Jennifer Wong, is paid less than the median for similar sized companies. For companies with market capitalisations between CA$2.7b and CA$8.7b, like Aritzia, the median CEO pay is around CA$4.6m.

Aritzia offered total compensation worth CA$2.4m to its CEO in the year to February 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Is Aritzia Worth Keeping An Eye On?

You can't deny that Aritzia has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant piece of the pie when it comes to the company's stock, and one has been buying more. These things considered, this is one stock worth watching. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Aritzia that you should be aware of.

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

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

Find out whether Aritzia is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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