Stock Analysis

With EPS Growth And More, Canadian National Railway (TSE:CNR) Makes An Interesting Case

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TSX:CNR
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Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Canadian National Railway (TSE:CNR). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for Canadian National Railway

Canadian National Railway's Earnings Per Share Are 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) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Shareholders will be happy to know that Canadian National Railway's EPS has grown 21% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. It seems Canadian National Railway is pretty stable, since revenue and EBIT margins are pretty flat year on year. That's not a major concern but nor does it point to the long term growth we like to see.

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:CNR Earnings and Revenue History February 21st 2024

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Canadian National Railway.

Are Canadian National Railway Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. 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.

Even though some insiders sold down their holdings, their actions speak louder than words with CA$1.1m more invested than sold by people who know they company best. This overall confidence in the company at current the valuation signals their optimism. It is also worth noting that it was Independent Director Margaret McKenzie who made the biggest single purchase, worth CA$1.3m, paying CA$173 per share.

The good news, alongside the insider buying, for Canadian National Railway bulls is that insiders (collectively) have a meaningful investment in the stock. We note that their impressive stake in the company is worth CA$1.8b. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

Should You Add Canadian National Railway To Your Watchlist?

For growth investors, Canadian National Railway's raw rate of earnings growth is a beacon in the night. Furthermore, company insiders have been adding to their significant stake in the company. These things considered, this is one stock worth watching. Before you take the next step you should know about the 1 warning sign for Canadian National Railway that we have uncovered.

Keen growth investors love to see insider buying. Thankfully, Canadian National Railway isn't the only one. You can see a a curated list of Canadian companies which have exhibited consistent growth accompanied by recent insider 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 Canadian National Railway 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

About TSX:CNR

Canadian National Railway

Canadian National Railway Company, together with its subsidiaries, engages in the rail, intermodal, trucking, and marine transportation and logistics business in Canada and the United States.

Outstanding track record average dividend payer.