We Ran A Stock Scan For Earnings Growth And Sanlam (JSE:SLM) Passed With Ease

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.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Sanlam (JSE:SLM). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for Sanlam

How Fast Is Sanlam Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Sanlam managed to grow EPS by 16% per year, over three years. That's a good rate of growth, if it can be sustained.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Our analysis has highlighted that Sanlam's revenue from operations did not account for all of their revenue last year, so our analysis of its margins might not accurately reflect the underlying business. Unfortunately, Sanlam's revenue dropped 52% last year, but the silver lining is that EBIT margins improved from 16% to 19%. That falls short of ideal.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Sanlam's future profits.

Are Sanlam Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Even though some insiders sold down their holdings, their actions speak louder than words with R11m more invested than sold by people who know they company best. You could argue that level of buying implies genuine confidence in the business. It is also worth noting that it was CEO of Sanlam Emerging Markets & Executive Director Heinie Werth who made the biggest single purchase, worth R6.5m, paying R54.83 per share.

Along with the insider buying, another encouraging sign for Sanlam is that insiders, as a group, have a considerable shareholding. Indeed, they hold R476m worth of its stock. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 0.4%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because on our analysis the CEO, Paul Hanratty, is paid less than the median for similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Sanlam with market caps between R74b and R221b is about R44m.

Sanlam's CEO took home a total compensation package of R6.1m in the year prior to December 2022. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. 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. It can also be a sign of a culture of integrity, in a broader sense.

Is Sanlam Worth Keeping An Eye On?

One positive for Sanlam is that it is growing EPS. That's nice to see. In addition, insiders have been busy adding to their sizeable holdings in the company. That makes the company a prime candidate for your watchlist - and arguably a research priority. Of course, just because Sanlam is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Keen growth investors love to see insider buying. Thankfully, Sanlam isn't the only one. You can see a a free list of them here.

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.