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 currently 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.’ 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 PulteGroup (NYSE:PHM), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
See our latest analysis for PulteGroup
How Quickly Is PulteGroup 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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. To the delight of shareholders, PulteGroup has achieved impressive annual EPS growth of 43%, compound, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.
It’s often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company’s growth. Not all of PulteGroup’s revenue last year was revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. The music to the ears of PulteGroup shareholders is that EBIT margins have grown from 17% to 20% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.
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 PulteGroup’s future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are PulteGroup Insiders Aligned With All Shareholders?
Since PulteGroup has a market capitalisation of US$9.1b, we wouldn’t expect insiders to hold a large percentage of shares. But thanks to their investment in the company, it’s pleasing to see that there are still incentives to align their actions with the shareholders. Holding US$62m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. This should keep them focused on creating long term value for shareholders.
Does PulteGroup Deserve A Spot On Your Watchlist?
PulteGroup’s earnings have taken off in quite an impressive fashion. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. At times fast EPS growth is a sign the business has reached an inflection point, so there’s a potential opportunity to be had here. So based on this quick analysis, we do think it’s worth considering PulteGroup for a spot on your watchlist. Before you take the next step you should know about the 1 warning sign for PulteGroup that we have uncovered.
There’s always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access 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.
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