Here's Why I Think Essential Properties Realty Trust (NYSE:EPRT) Might Deserve Your Attention Today

By
Simply Wall St
Published
February 24, 2022
NYSE:EPRT
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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Essential Properties Realty Trust (NYSE:EPRT). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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.

Check out our latest analysis for Essential Properties Realty Trust

Essential Properties Realty Trust's Earnings Per Share Are 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. Who among us would not applaud Essential Properties Realty Trust's stratospheric annual EPS growth of 43%, compound, over the last three years? While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.

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). Not all of Essential Properties Realty Trust's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. The good news is that Essential Properties Realty Trust is growing revenues, and EBIT margins improved by 11.0 percentage points to 57%, over the last year. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NYSE:EPRT Earnings and Revenue History February 24th 2022

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

Are Essential Properties Realty Trust Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

We haven't seen any insiders selling Essential Properties Realty Trust shares, in the last year. So it's definitely nice that Senior VP & Chief Accounting Officer Timothy Earnshaw bought US$9.9k worth of shares at an average price of around US$22.50.

The good news, alongside the insider buying, for Essential Properties Realty Trust bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$21m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.7% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Pete Mavoides is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like Essential Properties Realty Trust with market caps between US$2.0b and US$6.4b is about US$5.3m.

Essential Properties Realty Trust offered total compensation worth US$2.8m to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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 Essential Properties Realty Trust To Your Watchlist?

Essential Properties Realty Trust's earnings have taken off like any random crypto-currency did, back in 2017. The incing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. Because of the potential that it has reached an inflection point, I'd suggest Essential Properties Realty Trust belongs on the top of your watchlist. Still, you should learn about the 3 warning signs we've spotted with Essential Properties Realty Trust (including 1 which is a bit unpleasant) .

The good news is that Essential Properties Realty Trust is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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