For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. 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.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Arbor Realty Trust (NYSE:ABR). 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.
Arbor Realty Trust's Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years Arbor Realty Trust grew its EPS by 8.0% per year. That growth rate is fairly good, assuming the company can keep it up.
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 Arbor Realty Trust's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Arbor Realty Trust maintained stable EBIT margins over the last year, all while growing revenue 6.3% to US$427m. That's a real positive.
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 it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Arbor Realty Trust's balance sheet strength, before getting too excited.
Are Arbor Realty Trust Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.
While Arbor Realty Trust insiders did net -US$118k selling stock over the last year, they invested US$392k, a much higher figure. You could argue that level of buying implies genuine confidence in the business. We also note that it was the Lead Independent Director, William Green, who made the biggest single acquisition, paying US$118k for shares at about US$12.96 each.
The good news, alongside the insider buying, for Arbor Realty Trust bulls is that insiders (collectively) have a meaningful investment in the stock. With a whopping US$66m 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 Arbor Realty Trust To Your Watchlist?
As I already mentioned, Arbor Realty Trust is a growing business, which is what I like to see. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. Before you take the next step you should know about the 3 warning signs for Arbor Realty Trust (1 is a bit concerning!) that we have uncovered.
The good news is that Arbor Realty Trust 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.
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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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