Yahoo Finance Here's Why I Think Empire (TSE:EMP.A) Might Deserve Your Attention Today
It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable 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
In the last three years Empire's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like a wedge-tailed eagle on the wind, Empire's EPS soared from CA$1.74 to CA$2.42, in just one year. That's a impressive gain of 39%.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While we note Empire's EBIT margins were flat over the last year, revenue grew by a solid 7.9% to CA$28b. That's a real positive.
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.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Empire's forecast profits?
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. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
The first bit of good news is that no Empire insiders reported share sales in the last twelve months. But the really good news is that Independent Director Paul Sobey spent CA$314k buying stock stock, at an average price of around CA$31.35. To me that means at least one insider thinks that the company is doing well - and they are backing that view with cash.
The good news, alongside the insider buying, for Empire bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold CA$63m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.7% 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?
For growth investors like me, Empire's raw rate of earnings growth is a beacon in the night. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So I do think this is one stock worth watching. If you think Empire might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.
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.
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. 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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