Stock Analysis

If You Like EPS Growth Then Check Out Insulet (NASDAQ:PODD) Before It's Too Late

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NasdaqGS:PODD
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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 completely lacks a track record of revenue and profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Insulet (NASDAQ:PODD). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for Insulet

How Fast Is Insulet Growing Its Earnings Per Share?

Over the last three years, Insulet has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like a wedge-tailed eagle on the wind, Insulet's EPS soared from US$0.083 to US$0.14, in just one year. That's a impressive gain of 64%.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Insulet's EBIT margins were flat over the last year, revenue grew by a solid 23% to US$959m. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
NasdaqGS:PODD Earnings and Revenue History June 24th 2021

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

Are Insulet Insiders Aligned With All Shareholders?

Since Insulet has a market capitalization of US$19b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. Given insiders own a small fortune of shares, currently valued at US$86m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Insulet, with market caps over US$8.0b, is about US$11m.

Insulet offered total compensation worth US$7.3m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add Insulet To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Insulet's strong EPS growth. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. Each to their own, but I think all this makes Insulet look rather interesting indeed. You still need to take note of risks, for example - Insulet has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like 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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What are the risks and opportunities for Insulet?

Insulet Corporation develops, manufactures, and sells insulin delivery systems for people with insulin-dependent diabetes.

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Rewards

  • Earnings are forecast to grow 50.65% per year

  • Became profitable this year

Risks

  • Interest payments are not well covered by earnings

  • Significant insider selling over the past 3 months

View all Risks and Rewards

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