Is Now The Time To Put Veritiv (NYSE:VRTV) On Your Watchlist?

By
Simply Wall St
Published
January 26, 2022
NYSE:VRTV
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. 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 contrast to all that, I prefer to spend time on companies like Veritiv (NYSE:VRTV), 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. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

See our latest analysis for Veritiv

Veritiv's Improving Profits

In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that Veritiv's EPS went from US$0.35 to US$8.20 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement.

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. Veritiv reported flat revenue and EBIT margins over the last year. That's not a major concern but nor does it point to the long term growth we like to see.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
NYSE:VRTV Earnings and Revenue History January 26th 2022

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Veritiv 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

The first bit of good news is that no Veritiv insiders reported share sales in the last twelve months. But the really good news is that Independent Chairman Stephen Macadam F. spent US$387k buying stock stock, at an average price of around US$59.60. Big buys like that give me a sense of opportunity; actions speak louder than words.

Along with the insider buying, another encouraging sign for Veritiv is that insiders, as a group, have a considerable shareholding. With a whopping US$71m worth of shares as a group, insiders have plenty riding on the company's success. That's certainly enough to make me think that management will be very focussed on long term growth.

Should You Add Veritiv To Your Watchlist?

Veritiv's earnings per share have taken off like a rocket aimed right at the moon. The incing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Veritiv deserves timely attention. Even so, be aware that Veritiv is showing 2 warning signs in our investment analysis , you should know about...

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Veritiv, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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