Stock Analysis

Should You Be Adding Primoris Services (NASDAQ:PRIM) To Your Watchlist Today?

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NasdaqGS:PRIM
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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. 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 Primoris Services (NASDAQ:PRIM), which has not only revenues, but also profits. 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.

View our latest analysis for Primoris Services

How Quickly Is Primoris Services 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). It's no surprise, then, that I like to invest in companies with EPS growth. It certainly is nice to see that Primoris Services has managed to grow EPS by 19% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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. Primoris Services maintained stable EBIT margins over the last year, all while growing revenue 3.7% to US$3.5b. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
NasdaqGS:PRIM Earnings and Revenue History December 17th 2021

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 Primoris Services?

Are Primoris Services Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

First things first; I didn't see insiders sell Primoris Services shares in the last year. Even better, though, is that the Independent Director, Terry McCallister, bought a whopping US$246k worth of shares, paying about US$24.61 per share, on average. To me that means at least one insider thinks that the company is doing well - and they are backing that view with cash.

Along with the insider buying, another encouraging sign for Primoris Services is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$18m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 1.4% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Tom McCormick, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like Primoris Services with market caps between US$1.0b and US$3.2b is about US$3.7m.

Primoris Services offered total compensation worth US$2.2m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. 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 Primoris Services To Your Watchlist?

You can't deny that Primoris Services has grown its earnings per share at a very impressive rate. That's attractive. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So it's fair to say I think this stock may well deserve a spot on your watchlist. You still need to take note of risks, for example - Primoris Services has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

The good news is that Primoris Services 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.

What are the risks and opportunities for Primoris Services?

Primoris Services Corporation, a specialty contractor company, provides a range of construction, fabrication, maintenance, replacement, and engineering services in the United States and Canada.

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Rewards

  • Price-To-Earnings ratio (11.5x) is below the US market (15.5x)

  • Earnings are forecast to grow 12.8% per year

  • Earnings have grown 14.3% per year over the past 5 years

Risks

  • Debt is not well covered by operating cash flow

  • Significant insider selling over the past 3 months

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