It’s only natural that many investors, especially those who are new to the game, prefer to buy shares in ‘sexy’ stocks with a good story, even if those businesses lose money. 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 PRA Health Sciences (NASDAQ:PRAH). 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.
PRA Health Sciences’s Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It’s no surprise, then, that I like to invest in companies with EPS growth. I, for one, am blown away by the fact that PRA Health Sciences has grown EPS by 39% per year, over the last three years. Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.
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. While we note PRA Health Sciences’s EBIT margins were flat over the last year, revenue grew by a solid 7.1% to US$3.0b. That’s progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.
Fortunately, we’ve got access to analyst forecasts of PRA Health Sciences’s future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are PRA Health Sciences Insiders Aligned With All Shareholders?
Since PRA Health Sciences has a market capitalization of US$6.7b, we wouldn’t expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. To be specific, they have US$13m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that’s only about 0.2% of the company, it’s enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Does PRA Health Sciences Deserve A Spot On Your Watchlist?
PRA Health Sciences’s earnings have taken off like any random crypto-currency did, back in 2017. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So yes, on this short analysis I do think it’s worth considering PRA Health Sciences for a spot on your watchlist. Once you’ve identified a business you like, the next step is to consider what you think it’s worth. And right now is your chance to view our exclusive discounted cashflow valuation of PRA Health Sciences. You might benefit from giving it a glance today.
Although PRA Health Sciences certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you’re looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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