Like a puppy chasing its tail, some new investors often chase ‘the next big thing’, even if that means buying ‘story stocks’ without revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’
So if you’re like me, you might be more interested in profitable, growing companies, like Chocoladefabriken Lindt & Sprüngli (VTX:LISN). While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Fast Is Chocoladefabriken Lindt & Sprüngli Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Chocoladefabriken Lindt & Sprüngli managed to grow EPS by 7.0% per year, over three years. While that sort of growth rate isn’t amazing, it does show the business is growing.
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. Chocoladefabriken Lindt & Sprüngli maintained stable EBIT margins over the last year, all while growing revenue 4.6% to CHF4.4b. That’s a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.
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 Chocoladefabriken Lindt & Sprüngli.
Are Chocoladefabriken Lindt & Sprüngli Insiders Aligned With All Shareholders?
Since Chocoladefabriken Lindt & Sprüngli has a market capitalization of CHF20b, we wouldn’t expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Notably, they have an enormous stake in the company, worth CHF577m. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I’d say they are indeed. For companies with market capitalizations over CHF7.8b, like Chocoladefabriken Lindt & Sprüngli, the median CEO pay is around CHF4.8m.
The Chocoladefabriken Lindt & Sprüngli CEO received CHF3.8m in compensation for the year ending December 2018. That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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.
Does Chocoladefabriken Lindt & Sprüngli Deserve A Spot On Your Watchlist?
As I already mentioned, Chocoladefabriken Lindt & Sprüngli is a growing business, which is what I like to see. The fact that EPS is growing is a genuine positive for Chocoladefabriken Lindt & Sprüngli, but the pretty picture gets better than that. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Chocoladefabriken Lindt & Sprüngli.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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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