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 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.
So if you're like me, you might be more interested in profitable, growing companies, like Blackstone (NYSE:BX). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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.
How Quickly Is Blackstone Increasing Earnings Per Share?
As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Blackstone has managed to grow EPS by 31% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
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 Blackstone's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Blackstone's EBIT margins were flat over the last year, revenue grew by a solid 258% to US$22b. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed 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 Blackstone?
Are Blackstone Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$138b company like Blackstone. But we are reassured by the fact they have invested in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$202m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
Is Blackstone Worth Keeping An Eye On?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Blackstone's strong EPS growth. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. However, before you get too excited we've discovered 2 warning signs for Blackstone that you should be aware of.
Although Blackstone 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.
What are the risks and opportunities for Blackstone?
Trading at 2.9% below our estimate of its fair value
Earnings are forecast to grow 36.96% per year
Significant insider selling over the past 3 months
Has a high level of debt
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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.
Blackstone Inc. is an alternative asset management firm specializing in real estate, private equity, hedge fund solutions, credit, secondary funds of funds, public debt and equity and multi-asset class strategies.
Exceptional growth potential with mediocre balance sheet.