Should You Be Adding Johnson & Johnson (NYSE:JNJ) To Your Watchlist Today?

By
Simply Wall St
Published
January 16, 2022
NYSE:JNJ
Source: Shutterstock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 Johnson & Johnson (NYSE:JNJ), which has not only revenues, but also profits. 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.

Check out our latest analysis for Johnson & Johnson

Johnson & Johnson's Improving Profits

Over the last three years, Johnson & Johnson has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. Thus, it makes sense to focus on more recent growth rates, instead. Over twelve months, Johnson & Johnson increased its EPS from US$6.40 to US$6.79. That amounts to a small improvement of 6.1%.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While we note Johnson & Johnson's EBIT margins were flat over the last year, revenue grew by a solid 13% to US$91b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NYSE:JNJ Earnings and Revenue History January 16th 2022

Fortunately, we've got access to analyst forecasts of Johnson & Johnson's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Johnson & Johnson Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$442b company like Johnson & Johnson. 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$272m. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.

Is Johnson & Johnson Worth Keeping An Eye On?

One important encouraging feature of Johnson & Johnson is that it is growing profits. If that's not enough on its own, there is also the rather notable levels of insider ownership. The combination sparks joy for me, so I'd consider keeping the company on a watchlist. Even so, be aware that Johnson & Johnson is showing 1 warning sign in our investment analysis , you should know about...

Although Johnson & Johnson 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.

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