Is Now The Time To Put TopBuild (NYSE:BLD) On Your Watchlist?

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

So if this idea of high risk and high reward doesn’t suit, you might be more interested in profitable, growing companies, like TopBuild (NYSE:BLD). 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.

View our latest analysis for TopBuild

How Quickly Is TopBuild 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. That means EPS growth is considered a real positive by most successful long-term investors. Recognition must be given to the that TopBuild has grown EPS by 42% per year, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

One way to double-check a company’s growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. EBIT margins for TopBuild remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 53% to US$4.8b. 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.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don’t exist, you can check our visualization of consensus analyst forecasts for TopBuild’s future EPS 100% free.

Are TopBuild Insiders Aligned With All Shareholders?

Owing to the size of TopBuild, we wouldn’t expect insiders to hold a significant proportion of the company. But we are reassured by the fact they have invested in the company. As a matter of fact, their holding is valued at US$35m. This considerable investment should help drive long-term value in the business. Even though that’s only about 0.6% of the company, it’s enough money to indicate alignment between the leaders of the business and ordinary shareholders.

While it’s always good to see some strong conviction in the company from insiders through heavy investment, it’s also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to TopBuild, with market caps between US$4.0b and US$12b, is around US$8.0m.

TopBuild offered total compensation worth US$4.7m to its CEO in the year to December 2021. That is actually below the median for CEO’s of similarly sized companies. 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 TopBuild Worth Keeping An Eye On?

TopBuild’s earnings have taken off in quite an impressive fashion. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The strong EPS improvement suggests the businesses is humming along. Big growth can make big winners, so the writing on the wall tells us that TopBuild is worth considering carefully. Don’t forget that there may still be risks. For instance, we’ve identified 2 warning signs for TopBuild (1 doesn’t sit too well with us) you should be aware of.

Although TopBuild certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, 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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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.