Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone 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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
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 easyJet (LON:EZJ). 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.
See our latest analysis for easyJet
How Fast Is easyJet Growing Its Earnings Per Share?
easyJet has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. As a result, we'll zoom in on growth over the last year, instead. To the delight of shareholders, easyJet's EPS soared from UK£0.43 to UK£0.60, over the last year. That's a commendable gain of 39%.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Our analysis has highlighted that easyJet's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. easyJet maintained stable EBIT margins over the last year, all while growing revenue 14% to UK£9.3b. That's encouraging news for the company!
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for easyJet.
Are easyJet 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Not only did easyJet insiders refrain from selling stock during the year, but they also spent UK£67k buying it. That's nice to see, because it suggests insiders are optimistic.
On top of the insider buying, it's good to see that easyJet insiders have a valuable investment in the business. Indeed, they have a considerable amount of wealth invested in it, currently valued at UK£642m. That equates to 15% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because easyJet's CEO, Johan Lundgren, is paid at a relatively modest level when compared to other CEOs for companies of this size. The median total compensation for CEOs of companies similar in size to easyJet, with market caps between UK£3.2b and UK£9.5b, is around UK£2.6m.
easyJet's CEO took home a total compensation package worth UK£2.2m in the year leading up to September 2023. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Does easyJet Deserve A Spot On Your Watchlist?
You can't deny that easyJet has grown its earnings per share at a very impressive rate. That's attractive. Furthermore, company insiders have been adding to their significant stake in the company. Astute investors will want to keep this stock on watch. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with easyJet , and understanding this should be part of your investment process.
Keen growth investors love to see insider activity. Thankfully, easyJet isn't the only one. You can see a a curated list of British companies which have exhibited consistent growth accompanied by high insider ownership.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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Have 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.
About LSE:EZJ
Solid track record with excellent balance sheet.
