Here's Why Keurig Dr Pepper (NASDAQ:KDP) Has Caught The Eye Of Investors

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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Keurig Dr Pepper (NASDAQ:KDP). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

Check out the opportunities and risks within the US Beverage industry.

How Fast Is Keurig Dr Pepper 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. Impressively, Keurig Dr Pepper has grown EPS by 17% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

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. On the revenue front, Keurig Dr Pepper has done well over the past year, growing revenue by 9.9% to US$14b but EBIT margin figures were less stellar, seeing a decline over the last 12 months. If EBIT margins are able to stay balanced and this revenue growth continues, then we should see brighter days ahead.

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.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Keurig Dr Pepper.

Are Keurig Dr Pepper Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

The US$1.3m worth of shares that insiders sold during the last 12 months pales in comparison to the US$6.7m they spent on acquiring shares in the company. This bodes well for Keurig Dr Pepper as it highlights the fact that those who are important to the company having a lot of faith in its future. Zooming in, we can see that the biggest insider purchase was by Chief Strategy Officer Justin Whitmore for US$2.5m worth of shares, at about US$37.52 per share.

On top of the insider buying, it's good to see that Keurig Dr Pepper insiders have a valuable investment in the business. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$531m. We note that this amounts to 1.0% of the company, which may be small owing to the sheer size of Keurig Dr Pepper but it's still worth mentioning. This still shows shareholders there is a degree of alignment between management and themselves.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. The cherry on top is that the CEO, Ozan Dokmecioglu is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalisations over US$8.0b, like Keurig Dr Pepper, the median CEO pay is around US$13m.

The CEO of Keurig Dr Pepper only received US$3.5m in total compensation for the year ending December 2021. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Does Keurig Dr Pepper Deserve A Spot On Your Watchlist?

You can't deny that Keurig Dr Pepper has grown its earnings per share at a very impressive rate. That's attractive. Furthermore, company insiders have been adding to their significant stake in the company. Astute investors will want to keep this stock on watch. Even so, be aware that Keurig Dr Pepper is showing 2 warning signs in our investment analysis , you should know about...

Keen growth investors love to see insider buying. Thankfully, Keurig Dr Pepper isn't the only one. You can see a 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.