Stock Analysis

Here's Why I Think Old Republic International (NYSE:ORI) Is An Interesting Stock

NYSE:ORI
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 as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like Old Republic International (NYSE:ORI), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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.

See our latest analysis for Old Republic International

How Fast Is Old Republic International Growing?

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. It certainly is nice to see that Old Republic International has managed to grow EPS by 21% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. I note that Old Republic International'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 Old Republic International is growing revenues, and EBIT margins improved by 14.2 percentage points to 20%, over the last year. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NYSE:ORI Earnings and Revenue History December 19th 2021

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Old Republic International?

Are Old Republic International Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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 for Old Republic International shareholders is that no insiders reported selling shares in the last year. With that in mind, it's heartening that Lisa Caldwell, the of the company, paid US$15k for shares at around US$25.98 each.

On top of the insider buying, it's good to see that Old Republic International insiders have a valuable investment in the business. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$100m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Craig Smiddy, is paid less than the median for similar sized companies. For companies with market capitalizations between US$4.0b and US$12b, like Old Republic International, the median CEO pay is around US$6.4m.

The CEO of Old Republic International only received US$1.9m in total compensation for the year ending . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add Old Republic International To Your Watchlist?

You can't deny that Old Republic 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. We don't want to rain on the parade too much, but we did also find 1 warning sign for Old Republic International that you need to be mindful of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Old Republic International, you'll probably love this free list of growing companies that insiders are buying.

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.