Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
It’s only natural that many investors, especially those who are new to the game, prefer to buy shares in ‘sexy’ stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’
In contrast to all that, I prefer to spend time on companies like Admiral Group (LON:ADM), which has not only revenues, but also profits. While profit is not necessarily a social good, it’s easy to admire a business than can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
Admiral Group’s Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). It’s no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years Admiral Group grew its EPS by 8.5% per year. That’s a good rate of growth, if it can be sustained.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Not all of Admiral 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. The good news is that Admiral Group is growing revenues, and EBIT margins improved by 2 percentage points to 39%, over the last year. That’s great to see, on both counts.
The chart below shows how the company’s bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
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 Admiral Group?
Are Admiral Group Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a UK£5.6b company like Admiral Group. But we are reassured by the fact they have invested in the company. Notably, they have an enormous stake in the company, worth UK£771m. That equates to 14% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.
It’s good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Admiral Group with market caps between UK£3.2b and UK£9.5b is about UK£2.7m.
The Admiral Group CEO received total compensation of just UK£404k in the year to December 2018. That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. 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.
Should You Add Admiral Group To Your Watchlist?
One important encouraging feature of Admiral Group is that it is growing profits. Earnings growth might be the main game for Admiral Group, but the fun does not stop there. Boasting both modest CEO pay and considerable insider ownership, I’d argue this one is worthy of the watchlist, at least. 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 Admiral Group.
Although Admiral Group certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you’re looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.