For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Menora Mivtachim Holdings (TLV:MMHD). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
How Quickly Is Menora Mivtachim Holdings Increasing Earnings Per Share?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Who among us would not applaud Menora Mivtachim Holdings's stratospheric annual EPS growth of 54%, compound, over the last three years? Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.
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. I note that Menora Mivtachim Holdings's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Menora Mivtachim Holdings shareholders can take confidence from the fact that EBIT margins are up from 4.7% to 9.3%, and revenue is growing. That's great to see, on both counts.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are Menora Mivtachim 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 Menora Mivtachim Holdings insiders have a significant amount of capital invested in the stock. Indeed, they hold ₪108m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 2.7% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Does Menora Mivtachim Holdings Deserve A Spot On Your Watchlist?
Menora Mivtachim Holdings's earnings per share have taken off like a rocket aimed right at the moon. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So to my mind Menora Mivtachim Holdings is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Even so, be aware that Menora Mivtachim Holdings is showing 2 warning signs in our investment analysis , you should know about...
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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.
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