Here's Why ODP (NASDAQ:ODP) Has Caught The Eye Of Investors

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like ODP (NASDAQ:ODP), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide ODP with the means to add long-term value to shareholders.

See our latest analysis for ODP

How Quickly Is ODP Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Impressively, ODP has grown EPS by 28% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied. EPS growth figures have also been helped by share buybacks, showing the market that the company is in a position of financial strength, allowing it to return capital to shareholders.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. It seems ODP is pretty stable, since revenue and EBIT margins are pretty flat year on year. That's not bad, but it doesn't point to ongoing future growth, either.

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.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are ODP Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that ODP insiders have a significant amount of capital invested in the stock. To be specific, they have US$50m worth of shares. That's a lot of money, and no small incentive to work hard. While their ownership only accounts for 3.2%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

Should You Add ODP To Your Watchlist?

You can't deny that ODP has grown its earnings per share at a very impressive rate. That's attractive. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. Still, you should learn about the 2 warning signs we've spotted with ODP (including 1 which shouldn't be ignored).

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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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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.