Stock Analysis

Here's Why I Think Genworth Financial (NYSE:GNW) Is An Interesting Stock

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NYSE:GNW
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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.

So if you're like me, you might be more interested in profitable, growing companies, like Genworth Financial (NYSE:GNW). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Genworth Financial

How Quickly Is Genworth Financial Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Genworth Financial has grown EPS by 6.7% per year. While that sort of growth rate isn't amazing, it does show the business is growing.

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. I note that Genworth Financial's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. The good news is that Genworth Financial is growing revenues, and EBIT margins improved by 9.4 percentage points to 18%, over the last year. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NYSE:GNW Earnings and Revenue History July 6th 2021

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Genworth Financial 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. As a result, I'm encouraged by the fact that insiders own Genworth Financial shares worth a considerable sum. Indeed, they hold US$22m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 1.1% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Is Genworth Financial Worth Keeping An Eye On?

As I already mentioned, Genworth Financial is a growing business, which is what I like to see. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. Before you take the next step you should know about the 2 warning signs for Genworth Financial (1 is concerning!) that we have uncovered.

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 Genworth Financial?

Genworth Financial, Inc. provides insurance products in the United States and internationally.

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Rewards

  • Trading at 54.9% below our estimate of its fair value

Risks

  • Profit margins (8.1%) are lower than last year (12.4%)

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Genworth Financial

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