If You Like EPS Growth Then Check Out Beijer Ref (STO:BEIJ B) Before It's Too Late

By
Simply Wall St
Published
April 25, 2022
OM:BEIJ B
Source: Shutterstock

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Beijer Ref (STO:BEIJ B). 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.

See our latest analysis for Beijer Ref

How Quickly Is Beijer Ref 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. Beijer Ref managed to grow EPS by 9.2% per year, over three years. That's a good rate of growth, if it can be sustained.

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). While we note Beijer Ref's EBIT margins were flat over the last year, revenue grew by a solid 26% to kr18b. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
OM:BEIJ B Earnings and Revenue History April 25th 2022

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Beijer Ref?

Are Beijer Ref Insiders Aligned With All Shareholders?

Since Beijer Ref has a market capitalization of kr68b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at kr3.8b. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations between kr38b and kr114b, like Beijer Ref, the median CEO pay is around kr20m.

The CEO of Beijer Ref only received kr8.6m in total compensation for the year ending . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add Beijer Ref To Your Watchlist?

One positive for Beijer Ref is that it is growing EPS. That's nice to see. The fact that EPS is growing is a genuine positive for Beijer Ref, but the pretty picture gets better than that. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. We don't want to rain on the parade too much, but we did also find 2 warning signs for Beijer Ref that you need to be mindful 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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