Yahoo Finance Here's Why I Think Power Corporation of Canada (TSE:POW) Is An Interesting Stock
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 completely lacks a track record of revenue and 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.
In contrast to all that, I prefer to spend time on companies like Power Corporation of Canada (TSE:POW), which has not only revenues, but also profits. Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
View our latest analysis for Power Corporation of Canada
Power Corporation of Canada's Earnings Per Share Are Growing.
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). That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Power Corporation of Canada has grown EPS by 5.9% per year. While that sort of growth rate isn't amazing, it does show the business is growing.
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). Not all of Power Corporation of Canada's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. Power Corporation of Canada maintained stable EBIT margins over the last year, all while growing revenue 8.4% to CA$64b. That's progress.
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.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Power Corporation of Canada.
Are Power Corporation of Canada 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.
Although we did see some insider selling (worth -CA$188k) this was overshadowed by a mountain of buying, totalling CA$1.5m in just one year. This makes me even more interested in Power Corporation of Canada because it suggests that those who understand the company best, are optimistic. We also note that it was the Independent Director, Pierre Beaudoin, who made the biggest single acquisition, paying CA$1.5m for shares at about CA$42.14 each.
The good news, alongside the insider buying, for Power Corporation of Canada bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a glittering mountain of wealth invested in it, currently valued at CA$139m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
Is Power Corporation of Canada Worth Keeping An Eye On?
One important encouraging feature of Power Corporation of Canada is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist - and arguably a research priority. Before you take the next step you should know about the 2 warning signs for Power Corporation of Canada (1 doesn't sit too well with us!) that we have uncovered.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Power Corporation of Canada, you'll probably love this free list of growing companies that insiders are buying.
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. 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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