If You Like EPS Growth Then Check Out CMS Energy (NYSE:CMS) Before It's Too Late

By
Simply Wall St
Published
January 07, 2022
NYSE:CMS
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 as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like CMS Energy (NYSE:CMS), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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.

See our latest analysis for CMS Energy

How Fast Is CMS Energy 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. It's no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years CMS Energy grew its EPS by 13% per year. That's a pretty good rate, if the company can sustain it.

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. While we note CMS Energy's EBIT margins were flat over the last year, revenue grew by a solid 12% to US$7.3b. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NYSE:CMS Earnings and Revenue History January 7th 2022

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for CMS Energy?

Are CMS Energy Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$19b company like CMS Energy. But we are reassured by the fact they have invested in the company. With a whopping US$67m worth of shares as a group, insiders have plenty riding on the company's success. This should keep them focused on creating long term value for shareholders.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like CMS Energy, with market caps over US$8.0b, is about US$11m.

The CMS Energy CEO received total compensation of just US$2.6m in the year to . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. 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. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add CMS Energy To Your Watchlist?

One important encouraging feature of CMS Energy is that it is growing profits. Earnings growth might be the main game for CMS Energy, but the fun does not stop there. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. We don't want to rain on the parade too much, but we did also find 2 warning signs for CMS Energy (1 shouldn't be ignored!) that you need to be mindful of.

Although CMS Energy 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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