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 Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Beazer Homes USA (NYSE:BZH). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Beazer Homes USA's Improving Profits
In the last three years Beazer Homes USA's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like the last firework on New Year's Eve accelerating into the sky, Beazer Homes USA's EPS shot from US$0.92 to US$2.58, over the last year. You don't see 180% year-on-year growth like that, very often.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. This approach makes Beazer Homes USA look pretty good, on balance; although revenue is flattish, EBIT margins improved from 3.0% to 5.2% 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. Click on the chart to see the exact numbers.
Fortunately, we've got access to analyst forecasts of Beazer Homes USA's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Beazer Homes USA Insiders Aligned With All Shareholders?
I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own Beazer Homes USA shares worth a considerable sum. To be specific, they have US$41m worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 5.7% of the company; visible skin in the game.
Is Beazer Homes USA Worth Keeping An Eye On?
Beazer Homes USA's earnings have taken off like any random crypto-currency did, back in 2017. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So yes, on this short analysis I do think it's worth considering Beazer Homes USA for a spot on your watchlist. It is worth noting though that we have found 2 warning signs for Beazer Homes USA that you need to take into consideration.
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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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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