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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
So if you're like me, you might be more interested in profitable, growing companies, like Safehold (NYSE:SAFE). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Fast Is Safehold Growing Its Earnings Per Share?
In the last three years Safehold's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. It's good to see that Safehold's EPS have grown from US$1.00 to US$1.13 over twelve months. That's a 14% gain; respectable growth in the broader scheme of things.
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. I note that Safehold's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. The good news is that Safehold is growing revenues, and EBIT margins improved by 4.0 percentage points to 78%, over the last year. Ticking those two boxes is a good sign of growth, in my book.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
Fortunately, we've got access to analyst forecasts of Safehold's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Safehold Insiders Aligned With All Shareholders?
I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Safehold insiders have a significant amount of capital invested in the stock. Indeed, they hold US$22m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.6% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Is Safehold Worth Keeping An Eye On?
As I already mentioned, Safehold is a growing business, which is what I like to see. 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. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Safehold (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.
Although Safehold 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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What are the risks and opportunities for Safehold?
Price-To-Earnings ratio (15.7x) is below the REITs industry average (27x)
Earnings are forecast to grow 13.17% per year
Earnings grew by 101% over the past year
Interest payments are not well covered by earnings
Shareholders have been diluted in the past year
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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