Does Texas Pacific Land (NYSE:TPL) 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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Texas Pacific Land (NYSE:TPL). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Texas Pacific Land with the means to add long-term value to shareholders.

See our latest analysis for Texas Pacific Land

How Fast Is Texas Pacific Land Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, Texas Pacific Land has grown EPS by 7.9% per year. This may not be setting the world alight, but it does show that EPS is on the upwards trend.

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. The good news is that Texas Pacific Land is growing revenues, and EBIT margins improved by 8.8 percentage points to 86%, over the last year. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Texas Pacific Land's future profits.

Are Texas Pacific Land Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Despite US$1.3m worth of sales, Texas Pacific Land insiders have overwhelmingly been buying the stock, spending US$1.7m on purchases in the last twelve months. This overall confidence in the company at current the valuation signals their optimism. We also note that it was the Independent Trustee, Murray Stahl, who made the biggest single acquisition, paying US$19k for shares at about US$1,284 each.

Along with the insider buying, another encouraging sign for Texas Pacific Land is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at US$19m. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 0.2%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Tyler Glover is paid comparatively modestly to CEOs at similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Texas Pacific Land, with market caps over US$8.0b, is about US$13m.

Texas Pacific Land's CEO took home a total compensation package of US$5.0m in the year prior to December 2021. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Is Texas Pacific Land Worth Keeping An Eye On?

As previously touched on, Texas Pacific Land is a growing business, which is encouraging. In addition, insiders have been busy adding to their sizeable holdings in the company. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Texas Pacific Land. You might benefit from giving it a glance today.

The good news is that Texas Pacific Land 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.