Does Baxter International (NYSE:BAX) Deserve A Spot On Your Watchlist?

By
Simply Wall St
Published
March 03, 2021
NYSE:BAX
Source: Shutterstock

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. 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.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Baxter International (NYSE:BAX). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

View our latest analysis for Baxter International

How Fast Is Baxter International Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. As a tree reaches steadily for the sky, Baxter International's EPS has grown 24% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

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 Baxter International's EBIT margins were flat over the last year, revenue grew by a solid 2.7% to US$12b. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NYSE:BAX Earnings and Revenue History March 4th 2021

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

Are Baxter International Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

One shining light for Baxter International is the serious outlay one insider has made to buy shares, in the last year. Indeed, Senior VP & General Counsel Sean B. Martin has accumulated shares over the last year, paying a total of US$804k at an average price of about US$82.19. It doesn't get much better than that, in terms of large investments from insiders.

Along with the insider buying, another encouraging sign for Baxter International is that insiders, as a group, have a considerable shareholding. With a whopping US$57m worth of shares as a group, insiders have plenty riding on the company's success. That's certainly enough to make me think that management will be very focussed on long term growth.

Should You Add Baxter International To Your Watchlist?

You can't deny that Baxter International has grown its earnings per share at a very impressive rate. That's attractive. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So I do think this is one stock worth watching. Still, you should learn about the 2 warning signs we've spotted with Baxter International .

The good news is that Baxter International 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.

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This article by Simply Wall St is general in nature. 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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