Yahoo Finance Here's Why We Think Medibank Private (ASX:MPL) Might Deserve Your Attention Today
The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
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 Medibank Private (ASX:MPL). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Medibank Private with the means to add long-term value to shareholders.
See our latest analysis for Medibank Private
How Quickly Is Medibank Private Increasing Earnings Per Share?
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. Shareholders will be happy to know that Medibank Private's EPS has grown 24% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.
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. The good news is that Medibank Private is growing revenues, and EBIT margins improved by 5.6 percentage points to 12%, 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.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Medibank Private's forecast profits?
Are Medibank Private Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, 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.
It's nice to see that there have been no reports of any insiders selling shares in Medibank Private in the previous 12 months. With that in mind, it's heartening that Linda Nicholls, the Independent Non-Executive Director of the company, paid AU$20k for shares at around AU$3.65 each. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Medibank Private.
It's commendable to see that insiders have been buying shares in Medibank Private, but there is more evidence of shareholder friendly management. Namely, Medibank Private has a very reasonable level of CEO pay. For companies with market capitalisations between AU$5.9b and AU$18b, like Medibank Private, the median CEO pay is around AU$4.0m.
Medibank Private offered total compensation worth AU$3.3m to its CEO in the year to June 2023. 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 good governance, more generally.
Is Medibank Private Worth Keeping An Eye On?
You can't deny that Medibank Private has grown its earnings per share at a very impressive rate. That's attractive. But wait, it gets better. We have seen insider buying and the executive pay seems on the modest side of things. All in all, this stock is worth the time to delve deeper into the details. What about risks? Every company has them, and we've spotted 2 warning signs for Medibank Private (of which 1 makes us a bit uncomfortable!) you should know about.
Keen growth investors love to see insider activity. Thankfully, Medibank Private isn't the only one. You can see a a curated list of Australian companies which have exhibited consistent growth accompanied by high insider ownership.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
