Does Tri Pointe Homes (NYSE:TPH) Deserve A Spot On Your Watchlist?

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Tri Pointe Homes (NYSE:TPH). While this doesn’t necessarily speak to whether it’s undervalued, the profitability of the business is enough to warrant some appreciation – especially if its growing.

See our latest analysis for Tri Pointe Homes

Tri Pointe Homes’ Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Tri Pointe Homes’ shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 57%. While that sort of growth rate isn’t sustainable for long, it certainly catches the eye of prospective investors.

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. The good news is that Tri Pointe Homes is growing revenues, and EBIT margins improved by 2.6 percentage points to 18%, over the last year. Ticking those two boxes is a good sign of growth, in our book.

You can take a look at the company’s revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Fortunately, we’ve got access to analyst forecasts of Tri Pointe Homes’ future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Tri Pointe Homes Insiders Aligned With All Shareholders?

It’s a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Tri Pointe Homes followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Indeed, they hold US$32m worth of its stock. This considerable investment should help drive long-term value in the business. Despite being just 1.7% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Should You Add Tri Pointe Homes To Your Watchlist?

Tri Pointe Homes’ earnings have taken off in quite an impressive fashion. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching Tri Pointe Homes very closely. Still, you should learn about the 2 warning signs we’ve spotted with Tri Pointe Homes.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.