The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Prudential (LON:PRU). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Prudential with the means to add long-term value to shareholders.
Prudential's Improving Profits
Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Prudential's EPS shot up from US$0.62 to US$0.88; a result that's bound to keep shareholders happy. That's a fantastic gain of 42%.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. EBIT margins for Prudential remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 11% to US$12b. That's progress.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
View our latest analysis for Prudential
While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Prudential?
Are Prudential Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
The real kicker here is that Prudential insiders spent a staggering US$1.0m on acquiring shares in just one year, without single share being sold in the meantime. Knowing this, Prudential will have have all eyes on them in anticipation for the what could happen in the near future. We also note that it was the CEO & Executive Director, Anil Wadhwani, who made the biggest single acquisition, paying UK£620k for shares at about UK£7.38 each.
Recent insider purchases of Prudential stock is not the only way management has kept the interests of the general public shareholders in mind. Specifically, the CEO is paid quite reasonably for a company of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Prudential, with market caps over US$8.0b, is about US$6.6m.
Prudential's CEO took home a total compensation package worth US$5.8m in the year leading up to December 2024. That comes in below the average for similar sized companies and seems pretty reasonable. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Should You Add Prudential To Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into Prudential's strong EPS growth. And that's not the only positive either. We have both insider buying and reasonable and remuneration to consider. The overriding message from this quick rundown is yes, this stock is worth investigating further. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Prudential is trading on a high P/E or a low P/E, relative to its industry.
The good news is that Prudential is not the only stock with insider buying. Here's a list of small cap, undervalued companies in GB 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.
Valuation is complex, but we're here to simplify it.
Discover if Prudential might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.