Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone 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.
In contrast to all that, I prefer to spend time on companies like Chesapeake Utilities (NYSE:CPK), which has not only revenues, but also profits. 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. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Chesapeake Utilities's Improving Profits
Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So EPS growth can certainly encourage an investor to take note of a stock. Chesapeake Utilities boosted its trailing twelve month EPS from US$3.74 to US$4.48, in the last year. That's a 20% gain; respectable growth in the broader scheme of things.
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). While we note Chesapeake Utilities's EBIT margins were flat over the last year, revenue grew by a solid 12% to US$527m. That's progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Chesapeake Utilities's forecast profits?
Are Chesapeake Utilities Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that Chesapeake Utilities insiders have a significant amount of capital invested in the stock. To be specific, they have US$47m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 2.2% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. I discovered that the median total compensation for the CEOs of companies like Chesapeake Utilities with market caps between US$1.0b and US$3.2b is about US$3.7m.
Chesapeake Utilities offered total compensation worth US$2.5m to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. I'd also argue reasonable pay levels attest to good decision making more generally.
Should You Add Chesapeake Utilities To Your Watchlist?
One positive for Chesapeake Utilities is that it is growing EPS. That's nice to see. The fact that EPS is growing is a genuine positive for Chesapeake Utilities, but the pretty picture gets better than that. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Still, you should learn about the 2 warning signs we've spotted with Chesapeake Utilities .
Although Chesapeake Utilities 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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