With EPS Growth And More, Imperial Brands (LON:IMB) Is Interesting

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 Imperial Brands (LON:IMB). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for Imperial Brands

How Quickly Is Imperial Brands Increasing Earnings Per Share?

As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. As a tree reaches steadily for the sky, Imperial Brands's EPS has grown 32% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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. Imperial Brands shareholders can take confidence from the fact that EBIT margins are up from 14% to 19%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

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.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Imperial Brands EPS 100% free.

Are Imperial Brands Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Any way you look at it Imperial Brands shareholders can gain quiet confidence from the fact that insiders shelled out UK£432k to buy stock, over the last year. When you contrast that with the complete lack of sales, it's easy for shareholders to brim with joyful expectancy. Zooming in, we can see that the biggest insider purchase was by Oliver Tant for UK£159k worth of shares, at about UK£15.77 per share.

Along with the insider buying, another encouraging sign for Imperial Brands is that insiders, as a group, have a considerable shareholding. Notably, they have an enormous stake in the company, worth UK£555m. 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.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Stefan Bomhard, is paid less than the median for similar sized companies. For companies with market capitalizations over UK£5.9b, like Imperial Brands, the median CEO pay is around UK£2.8m.

The CEO of Imperial Brands only received UK£1.1m in total compensation for the year ending . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Is Imperial Brands Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Imperial Brands's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. What about risks? Every company has them, and we've spotted 3 warning signs for Imperial Brands (of which 1 can't be ignored!) you should know about.

As a growth investor I do like to see insider buying. But Imperial Brands 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.

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.

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