Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Pfizer (NSE:PFIZER). 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.
Pfizer’s Earnings Per Share Are Growing.
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Pfizer has managed to grow EPS by 26% per year over three years. As a general rule, we’d say that if a company can keep up that sort of growth, shareholders will be smiling.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company’s growth. While we note Pfizer’s EBIT margins were flat over the last year, revenue grew by a solid 2.6% to ₹21b. That’s a real positive.
The chart below shows how the company’s bottom and top lines have progressed over time.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Pfizer’s forecast profits?
Are Pfizer Insiders Aligned With All Shareholders?
I always like to check up on CEO compensation, because I think that reasonable pay levels, around or below the median, can be a sign that shareholder interests are well considered. For companies with market capitalizations between ₹71b and ₹228b, like Pfizer, the median CEO pay is around ₹45m.
Pfizer offered total compensation worth ₹35.5m to its CEO in the year to March 2019. That comes in below the average for similar sized companies, and seems pretty reasonable to me. While the level of CEO compensation isn’t a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I’d also argue reasonable pay levels attest to good decision making more generally.
Should You Add Pfizer To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Pfizer’s strong EPS growth. With swiftly growing earnings, it probably has its best days ahead, and the modest CEO pay suggests the company is careful with cash. So I’d venture it may well deserve a spot on your watchlist, or even a little further research. Of course, just because Pfizer is growing does not mean it is undervalued. If you’re wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Although Pfizer 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
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