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. 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.
So if you're like me, you might be more interested in profitable, growing companies, like Kimco Realty (NYSE:KIM). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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.
How Fast Is Kimco Realty 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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Kimco Realty has grown EPS by 33% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
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. Unfortunately, revenue is down and so are margins. That is, not a hint of euphemism here, suboptimal.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Kimco Realty.
Are Kimco Realty Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
It's worth noting that there was some insider selling of Kimco Realty shares last year, worth -US$123k. But this is outweighed by the Independent Non-Management Director Philip Coviello who spent US$214k buying shares, at an average price of around around US$10.70.
The good news, alongside the insider buying, for Kimco Realty bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$339m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
Is Kimco Realty Worth Keeping An Eye On?
For growth investors like me, Kimco Realty's raw rate of earnings growth is a beacon in the night. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So I do think this is one stock worth watching. What about risks? Every company has them, and we've spotted 5 warning signs for Kimco Realty (of which 2 can't be ignored!) you should know about.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Kimco Realty, you'll probably love this free list of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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What are the risks and opportunities for Kimco Realty?
Trading at 14.7% below our estimate of its fair value
Earnings are forecast to grow 9.74% per year
Interest payments are not well covered by earnings
Profit margins (13.6%) are lower than last year (77.2%)
Large one-off items impacting financial results
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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