Should You Be Adding Lifco (STO:LIFCO B) To Your Watchlist Today?

By
Simply Wall St
Published
July 01, 2021
OM:LIFCO B
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. 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.

So if you're like me, you might be more interested in profitable, growing companies, like Lifco (STO:LIFCO B). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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 Lifco

How Quickly Is Lifco Increasing Earnings Per Share?

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 Lifco has managed to grow EPS by 17% per year over three years. As a result, we can understand why the stock trades on a high multiple of trailing twelve month earnings.

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. This approach makes Lifco look pretty good, on balance; although revenue is flattish, EBIT margins improved from 15% to 17% in the last year. That's something to smile about.

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:LIFCO B Earnings and Revenue History July 1st 2021

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Lifco's future profits.

Are Lifco Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

It's a pleasure to note that insiders spent kr68m buying Lifco shares, over the last year, without reporting any share sales whatsoever. As if for a flower bud approaching bloom, I become an expectant observer, anticipating with hope, that something splendid is coming. We also note that it was the Independent Chairman of the Board, Carl Bennet, who made the biggest single acquisition, paying kr57m for shares at about kr186 each.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Lifco insiders own more than a third of the company. Indeed, with a collective holding of 51%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. At the current share price, that insider holding is worth a whopping kr46b. Now that's what I call some serious skin in the game!

Is Lifco Worth Keeping An Eye On?

You can't deny that Lifco has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. Before you take the next step you should know about the 1 warning sign for Lifco that we have uncovered.

The good news is that Lifco is not the only growth stock with insider buying. Here's a list of them... 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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This article by Simply Wall St is general in nature. 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.
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