With EPS Growth And More, Starwood Property Trust (NYSE:STWD) Is Interesting

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.

So if you're like me, you might be more interested in profitable, growing companies, like Starwood Property Trust (NYSE:STWD). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Starwood Property Trust

Starwood Property 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. Starwood Property Trust managed to grow EPS by 4.5% per year, over three years. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Not all of Starwood Property Trust's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. While we note Starwood Property Trust's EBIT margins were flat over the last year, revenue grew by a solid 21% to US$753m. That's progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

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

Are Starwood Property Trust Insiders Aligned With All Shareholders?

Since Starwood Property Trust has a market capitalization of US$7.4b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Notably, they have an enormous stake in the company, worth US$310m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

Is Starwood Property Trust Worth Keeping An Eye On?

One important encouraging feature of Starwood Property Trust is that it is growing profits. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. You should always think about risks though. Case in point, we've spotted 4 warning signs for Starwood Property Trust you should be aware of, and 1 of them is a bit concerning.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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. 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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