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.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Grand Canyon Education (NASDAQ:LOPE). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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.
How Quickly Is Grand Canyon Education 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). That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Grand Canyon Education has grown EPS by 6.4% per year. While that sort of growth rate isn't amazing, it does show the business is growing. And for those who like the finer details, I'll add that the EPS growth has been helped by share buybacks, demonstrating that the business is positioned to return capital to its shareholders.
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. While we note Grand Canyon Education's EBIT margins were flat over the last year, revenue grew by a solid 7.5% to US$875m. That's progress.
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.
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 Grand Canyon Education?
Are Grand Canyon Education 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. So it is good to see that Grand Canyon Education insiders have a significant amount of capital invested in the stock. With a whopping US$55m worth of shares as a group, insiders have plenty riding on the company's success. This should keep them focused on creating long term value for shareholders.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations between US$2.0b and US$6.4b, like Grand Canyon Education, the median CEO pay is around US$5.2m.
The CEO of Grand Canyon Education only received US$2.1m in total compensation for the year ending . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I'd also argue reasonable pay levels attest to good decision making more generally.
Is Grand Canyon Education Worth Keeping An Eye On?
As I already mentioned, Grand Canyon Education is a growing business, which is what I like to see. The fact that EPS is growing is a genuine positive for Grand Canyon Education, 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. Now, you could try to make up your mind on Grand Canyon Education by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
Although Grand Canyon Education certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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