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Should You Be Adding Empire (TSE:EMP.A) To Your Watchlist Today?

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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

So if you're like me, you might be more interested in profitable, growing companies, like Empire (TSE:EMP.A). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

See our latest analysis for Empire

Empire's Improving Profits

Over the last three years, Empire has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like a firecracker arcing through the night sky, Empire's EPS shot from CA$0.74 to CA$1.55, over the last year. Year on year growth of 110% is certainly a sight to behold.

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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. While we note Empire's EBIT margins were flat over the last year, revenue grew by a solid 4.2% to CA$26b. That's a real positive.

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.

TSX:EMP.A Income Statement, December 3rd 2019
TSX:EMP.A Income Statement, December 3rd 2019

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Empire?

Are Empire Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. 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.

Any way you look at it Empire shareholders can gain quiet confidence from the fact that insiders shelled out CA$447k to buy stock, over the last year. And when you consider that there was no insider selling, you can understand why shareholders might believe that lady luck will grace this business. We also note that it was the President, Michael Medline, who made the biggest single acquisition, paying CA$300k for shares at about CA$28.28 each.

The good news, alongside the insider buying, for Empire bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have CA$61m worth of shares. That's a lot of money, and no small incentive to work hard. Despite being just 0.6% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Should You Add Empire To Your Watchlist?

Empire's earnings have taken off like any random crypto-currency did, back in 2017. What's more insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Empire deserves timely attention. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Empire.

As a growth investor I do like to see insider buying. But Empire 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

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.