With EPS Growth And More, Experian (LON:EXPN) Makes An Interesting Case

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 Experian (LON:EXPN). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Check out the opportunities and risks within the GB Professional Services industry.

Experian'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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Experian has managed to grow EPS by 18% per year 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. Experian maintained stable EBIT margins over the last year, all while growing revenue 17% to US$6.3b. 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.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Experian's forecast profits?

Are Experian 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.

We haven't seen any insiders selling Experian shares, in the last year. With that in mind, it's heartening that Ruba Borno, the Independent Non-Executive Director of the company, paid US$22k for shares at around US$23.85 each. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.

The good news, alongside the insider buying, for Experian bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have US$38m worth of shares. This considerable investment should help drive long-term value in the business. Despite being just 0.2% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Does Experian Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Experian's strong EPS growth. Moreover, the management and board of the company hold a significant stake in the company, with one party adding to this total. So it's fair to say that this stock may well deserve a spot on your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Experian , and understanding this should be part of your investment process.

Keen growth investors love to see insider buying. Thankfully, Experian isn't the only one. You can see a 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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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.