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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Fidelity National Financial (NYSE:FNF). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Fidelity National Financial's Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. I, for one, am blown away by the fact that Fidelity National Financial has grown EPS by 53% per year, over the last three years. That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.
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. I note that Fidelity National Financial's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Fidelity National Financial shareholders can take confidence from the fact that EBIT margins are up from 13% to 22%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Fidelity National Financial's forecast profits?
Are Fidelity National Financial Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$14b company like Fidelity National Financial. But we do take comfort from the fact that they are investors in the company. Notably, they have an enormous stake in the company, worth US$623m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations over US$8.0b, like Fidelity National Financial, the median CEO pay is around US$11m.
Fidelity National Financial offered total compensation worth US$9.7m to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.
Is Fidelity National Financial Worth Keeping An Eye On?
Fidelity National Financial's earnings have taken off like any random crypto-currency did, back in 2017. 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. Big growth can make big winners, so I do think Fidelity National Financial is worth considering carefully. We don't want to rain on the parade too much, but we did also find 3 warning signs for Fidelity National Financial (1 is a bit unpleasant!) that you need to be mindful of.
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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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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