With EPS Growth And More, Centene (NYSE:CNC) Makes An Interesting Case

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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 Centene (NYSE:CNC). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for Centene

Centene's Improving Profits

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's easy to see why many investors focus in on EPS growth. In impressive fashion, Centene's EPS grew from US$1.26 to US$3.56, over the previous 12 months. Year on year growth of 181% is certainly a sight to behold.

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. It's noted that Centene's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Centene maintained stable EBIT margins over the last year, all while growing revenue 17% to US$133b. That's encouraging news for the company!

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

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 Centene.

Are Centene Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

The good news is that Centene insiders spent a whopping US$1.7m on stock in just one year, without so much as a single sale. The shareholders within the general public should find themselves expectant and certainly hopeful, that this large outlay signals prescient optimism for the business. Zooming in, we can see that the biggest insider purchase was by Independent Director Christopher Coughlin for US$976k worth of shares, at about US$81.37 per share.

On top of the insider buying, it's good to see that Centene insiders have a valuable investment in the business. We note that their impressive stake in the company is worth US$279m. We note that this amounts to 0.6% of the company, which may be small owing to the sheer size of Centene but it's still worth mentioning. This still shows shareholders there is a degree of alignment between management and themselves.

Is Centene Worth Keeping An Eye On?

Centene's earnings per share have been soaring, with growth rates sky high. What's more, insiders own a significant stake in the company and have been buying more shares. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Centene belongs near the top of your watchlist. It is worth noting though that we have found 1 warning sign for Centene that you need to take into consideration.

Keen growth investors love to see insider buying. Thankfully, Centene 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.