Here's Why I Think Goosehead Insurance (NASDAQ:GSHD) Is An Interesting Stock

By
Simply Wall St
Published
August 11, 2021
NasdaqGS:GSHD
Source: Shutterstock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Goosehead Insurance (NASDAQ:GSHD). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for Goosehead Insurance

How Fast Is Goosehead Insurance Growing Its Earnings Per Share?

In the last three years Goosehead Insurance's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like a firecracker arcing through the night sky, Goosehead Insurance's EPS shot from US$0.22 to US$0.40, over the last year. You don't see 81% year-on-year growth like that, very often. That could be a sign that the business has reached a true inflection point.

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. Goosehead Insurance maintained stable EBIT margins over the last year, all while growing revenue 60% to US$135m. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

earnings-and-revenue-history
NasdaqGS:GSHD Earnings and Revenue History August 12th 2021

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

Are Goosehead Insurance Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Goosehead Insurance insiders have a significant amount of capital invested in the stock. Given insiders own a small fortune of shares, currently valued at US$95m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations between US$4.0b and US$12b, like Goosehead Insurance, the median CEO pay is around US$6.4m.

Goosehead Insurance offered total compensation worth US$5.4m 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.

Is Goosehead Insurance Worth Keeping An Eye On?

Goosehead Insurance's earnings per share have taken off like a rocket aimed right at the moon. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The strong EPS improvement suggests the businesses is humming along. Goosehead Insurance certainly ticks a few of my boxes, so I think it's probably well worth further consideration. Still, you should learn about the 4 warning signs we've spotted with Goosehead Insurance (including 1 which shouldn't be ignored) .

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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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