Do Clal Insurance Enterprises Holdings's (TLV:CLIS) Earnings Warrant Your Attention?

By
Simply Wall St
Published
February 22, 2022
TASE:CLIS
Source: Shutterstock

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like Clal Insurance Enterprises Holdings (TLV:CLIS), which has not only revenues, but also profits. 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.

View our latest analysis for Clal Insurance Enterprises Holdings

How Fast Is Clal Insurance Enterprises Holdings Growing Its Earnings Per Share?

In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. You can imagine, then, that it almost knocked my socks off when I realized that Clal Insurance Enterprises Holdings grew its EPS from ₪2.65 to ₪15.79, in one short year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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 Clal Insurance Enterprises Holdings'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. Clal Insurance Enterprises Holdings shareholders can take confidence from the fact that EBIT margins are up from 4.2% to 7.6%, and revenue is growing. That's great to see, on both counts.

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.

earnings-and-revenue-history
TASE:CLIS Earnings and Revenue History February 22nd 2022

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Clal Insurance Enterprises Holdings Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Clal Insurance Enterprises Holdings insiders have a significant amount of capital invested in the stock. Given insiders own a small fortune of shares, currently valued at ₪248m, they have plenty of motivation to push the business to succeed. That's certainly enough to make me think that management will be very focussed on long term growth.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations between ₪3.2b and ₪10b, like Clal Insurance Enterprises Holdings, the median CEO pay is around ₪3.5m.

Clal Insurance Enterprises Holdings offered total compensation worth ₪2.9m to its CEO in the year to . That seems pretty reasonable, especially given its 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. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add Clal Insurance Enterprises Holdings To Your Watchlist?

Clal Insurance Enterprises Holdings's earnings have taken off like any random crypto-currency did, back in 2017. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The strong EPS improvement suggests the businesses is humming along. Clal Insurance Enterprises Holdings certainly ticks a few of my boxes, so I think it's probably well worth further consideration. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Clal Insurance Enterprises Holdings that you should be aware of.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access 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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