If EPS Growth Is Important To You, Keurig Dr Pepper (NASDAQ:KDP) Presents An Opportunity

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

In contrast to all that, many investors prefer to focus on companies like Keurig Dr Pepper (NASDAQ:KDP), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for Keurig Dr Pepper

How Quickly Is Keurig Dr Pepper Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That makes EPS growth an attractive quality for any company. We can see that in the last three years Keurig Dr Pepper grew its EPS by 11% per year. That's a good rate of growth, if it can be sustained.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. The good news is that Keurig Dr Pepper is growing revenues, and EBIT margins improved by 3.0 percentage points to 23%, over the last year. Both of which are great metrics to check off for potential growth.

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

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

Are Keurig Dr Pepper 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We do note that, in the last year, insiders sold US$3.5m worth of shares. But that's far less than the US$21m insiders spent purchasing stock. We find this encouraging because it suggests they are optimistic about Keurig Dr Pepper'sfuture. Zooming in, we can see that the biggest insider purchase was by company insider G. Harf for US$5.0m worth of shares, at about US$29.10 per share.

The good news, alongside the insider buying, for Keurig Dr Pepper bulls is that insiders (collectively) have a meaningful investment in the stock. We note that their impressive stake in the company is worth US$628m. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

Should You Add Keurig Dr Pepper To Your Watchlist?

As previously touched on, Keurig Dr Pepper 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. What about risks? Every company has them, and we've spotted 2 warning signs for Keurig Dr Pepper (of which 1 makes us a bit uncomfortable!) you should know about.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Keurig Dr Pepper, you'll probably love this curated collection of companies in the US that have an attractive valuation alongside 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.