Does Service Corporation International (NYSE:SCI) Deserve A Spot On Your Watchlist?

By
Simply Wall St
Published
May 16, 2022
NYSE:SCI
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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In contrast to all that, I prefer to spend time on companies like Service Corporation International (NYSE:SCI), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

See our latest analysis for Service Corporation International

Service Corporation International's Earnings Per Share Are Growing.

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. Impressively, Service Corporation International has grown EPS by 27% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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. I note that Service Corporation International's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Service Corporation International maintained stable EBIT margins over the last year, all while growing revenue 10% to US$4.2b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

earnings-and-revenue-history
NYSE:SCI Earnings and Revenue History May 16th 2022

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Service Corporation International's forecast profits?

Are Service Corporation International Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$11b company like Service Corporation International. But we are reassured by the fact they have invested in the company. Notably, they have an enormous stake in the company, worth US$254m. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Service Corporation International, with market caps over US$8.0b, is about US$13m.

The Service Corporation International CEO received US$12m in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add Service Corporation International To Your Watchlist?

You can't deny that Service Corporation International has grown its earnings per share at a very impressive rate. That's attractive. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. Each to their own, but I think all this makes Service Corporation International look rather interesting indeed. You should always think about risks though. Case in point, we've spotted 2 warning signs for Service Corporation International you should be aware of, and 1 of them is potentially serious.

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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