Here's Why We Think CubeSmart (NYSE:CUBE) Is Well Worth Watching

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like CubeSmart (NYSE:CUBE). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide CubeSmart with the means to add long-term value to shareholders.

View our latest analysis for CubeSmart

How Fast Is CubeSmart Growing Its Earnings Per Share?

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. It's good to see that CubeSmart's EPS has grown from US$0.87 to US$0.98 over twelve months. That's a 13% gain; respectable growth in the broader scheme of things.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Not all of CubeSmart's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. On the revenue front, CubeSmart has done well over the past year, growing revenue by 24% to US$875m but EBIT margin figures were less stellar, seeing a decline over the last 12 months. If EBIT margins are able to stay balanced and this revenue growth continues, then we should see brighter days ahead.

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.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for CubeSmart's future EPS 100% free.

Are CubeSmart Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$9.8b company like CubeSmart. But we are reassured by the fact they have invested in the company. Given insiders own a significant chunk of shares, currently valued at US$51m, they have plenty of motivation to push the business to succeed. This would indicate that the goals of shareholders and management are one and the same.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to CubeSmart, with market caps over US$8.0b, is around US$13m.

CubeSmart's CEO took home a total compensation package worth US$7.6m in the year leading up to December 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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.

Does CubeSmart Deserve A Spot On Your Watchlist?

One positive for CubeSmart is that it is growing EPS. That's nice to see. The fact that EPS is growing is a genuine positive for CubeSmart, but the pleasant picture gets better than that. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. We should say that we've discovered 2 warning signs for CubeSmart (1 is potentially serious!) that you should be aware of before investing here.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you 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. 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.