Does Charles Schwab (NYSE:SCHW) Deserve A Spot On Your Watchlist?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Charles Schwab (NYSE:SCHW). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Charles Schwab with the means to add long-term value to shareholders.

Check out our latest analysis for Charles Schwab

How Fast Is Charles Schwab Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, Charles Schwab has grown EPS by 10% per year. That's a pretty good rate, if the company can sustain it.

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. Not all of Charles Schwab's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. While we note Charles Schwab achieved similar EBIT margins to last year, revenue grew by a solid 12% to US$21b. That's encouraging news for the company!

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.

Fortunately, we've got access to analyst forecasts of Charles Schwab's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Charles Schwab Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$99b company like Charles Schwab. But we are reassured by the fact they have invested in the company. We note that their impressive stake in the company is worth US$6.1b. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

Should You Add Charles Schwab To Your Watchlist?

One important encouraging feature of Charles Schwab is that it is growing profits. For those who are looking for a little more than this, the high level of insider ownership enhances our enthusiasm for this growth. These two factors are a huge highlight for the company which should be a strong contender your watchlists. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Charles Schwab , and understanding them should be part of your investment process.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you 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. 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.