Yahoo Finance Here's Why We Think Freehold Royalties (TSE:FRU) Is Well Worth Watching
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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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 Freehold Royalties (TSE:FRU). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Freehold Royalties with the means to add long-term value to shareholders.
View our latest analysis for Freehold Royalties
Freehold Royalties' Improving Profits
In the last three years Freehold Royalties' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. In impressive fashion, Freehold Royalties' EPS grew from CA$0.53 to CA$1.39, over the previous 12 months. Year on year growth of 163% is certainly a sight to behold. That could be a sign that the business has reached a true inflection point.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. The good news is that Freehold Royalties is growing revenues, and EBIT margins improved by 18.4 percentage points to 66%, over the last year. That's great to see, on both counts.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
Fortunately, we've got access to analyst forecasts of Freehold Royalties' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Freehold Royalties Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Any way you look at it Freehold Royalties shareholders can gain quiet confidence from the fact that insiders shelled out CA$704k 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 there are brighter days ahead. We also note that it was the President, David Spyker, who made the biggest single acquisition, paying CA$276k for shares at about CA$13.83 each.
Recent insider purchases of Freehold Royalties stock is not the only way management has kept the interests of the general public shareholders in mind. Namely, Freehold Royalties has a very reasonable level of CEO pay. The median total compensation for CEOs of companies similar in size to Freehold Royalties, with market caps between CA$1.4b and CA$4.3b, is around CA$3.1m.
Freehold Royalties' CEO took home a total compensation package of CA$624k in the year prior to December 2021. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Is Freehold Royalties Worth Keeping An Eye On?
Freehold Royalties' earnings per share growth have been climbing higher at an appreciable rate. Better yet, we can observe insider buying and the chief executive pay looks reasonable. The strong EPS growth suggests Freehold Royalties may be at an inflection point. For those attracted to fast growth, we'd suggest this stock merits monitoring. However, before you get too excited we've discovered 2 warning signs for Freehold Royalties (1 can't be ignored!) that you should be aware of.
The good news is that Freehold Royalties is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!
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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