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 completely lacks a track record of revenue and profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Cable One (NYSE:CABO). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Fast Is Cable One Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Cable One grew its EPS by 7.7% per year. While that sort of growth rate isn't amazing, it does show the business is growing.
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. Cable One maintained stable EBIT margins over the last year, all while growing revenue 13% to US$1.3b. That's a real positive.
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.
Fortunately, we've got access to analyst forecasts of Cable One's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Cable One Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$11b company like Cable One. But we do take comfort from the fact that they are investors in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$1.5b. That equates to 13% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations over US$8.0b, like Cable One, the median CEO pay is around US$11m.
The Cable One CEO received total compensation of just US$2.7m in the year to . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. 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 Cable One Worth Keeping An Eye On?
One positive for Cable One is that it is growing EPS. That's nice to see. The fact that EPS is growing is a genuine positive for Cable One, but the pretty picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, I'd argue this one is worthy of the watchlist, at least. Before you take the next step you should know about the 3 warning signs for Cable One 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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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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