Is Now The Time To Put Lloyds Banking Group (LON:LLOY) On Your Watchlist?

By
Simply Wall St
Published
April 21, 2022
LSE:LLOY
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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

So if you're like me, you might be more interested in profitable, growing companies, like Lloyds Banking Group (LON:LLOY). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Lloyds Banking Group

Lloyds Banking Group'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). It's no surprise, then, that I like to invest in companies with EPS growth. Lloyds Banking Group managed to grow EPS by 12% per year, over three years. That's a good rate of growth, if it can be sustained.

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. Not all of Lloyds Banking Group's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. Lloyds Banking Group maintained stable EBIT margins over the last year, all while growing revenue 53% to UK£17b. That's progress.

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
LSE:LLOY Earnings and Revenue History April 21st 2022

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Lloyds Banking Group?

Are Lloyds Banking Group Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a UK£32b company like Lloyds Banking Group. But we do take comfort from the fact that they are investors in the company. To be specific, they have UK£38m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.1% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Does Lloyds Banking Group Deserve A Spot On Your Watchlist?

One important encouraging feature of Lloyds Banking Group is that it is growing profits. If that's not enough on its own, there is also the rather notable levels of insider ownership. The combination sparks joy for me, so I'd consider keeping the company on a watchlist. Still, you should learn about the 3 warning signs we've spotted with Lloyds Banking Group (including 1 which is concerning) .

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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