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. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’ A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
If this kind of company isn’t your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Linamar (TSE:LNR). While profit isn’t the sole metric that should be considered when investing, it’s worth recognising businesses that can consistently produce it.
View our latest analysis for Linamar
How Quickly Is Linamar Increasing Earnings Per Share?
The market is a voting machine in the short term, but a weighing machine in the long term, so you’d expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Linamar’s shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 39%. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.
It’s often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company’s growth. EBIT margins for Linamar remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 30% to CA$9.0b. That’s progress.
The chart below shows how the company’s bottom and top lines have progressed over time. For finer detail, click on the image.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don’t exist, you can check our visualization of consensus analyst forecasts for Linamar’s future EPS 100% free.
Are Linamar Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
While Linamar insiders did net CA$2.6m selling stock over the last year, they invested CA$3.5m, a much higher figure. An optimistic sign for those with Linamar in their watchlist. We also note that it was the Executive Chairman of the Board & CEO, Linda Hasenfratz, who made the biggest single acquisition, paying CA$3.3m for shares at about CA$66.23 each.
The good news, alongside the insider buying, for Linamar bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a considerable amount of wealth invested in it, currently valued at CA$1.3b. Coming in at 34% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.
Does Linamar Deserve A Spot On Your Watchlist?
Linamar’s earnings per share growth have been climbing higher at an appreciable rate. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. These factors seem to indicate the company’s potential and that it has reached an inflection point. We’d suggest Linamar belongs near the top of your watchlist. Don’t forget that there may still be risks. For instance, we’ve identified 1 warning sign for Linamar that you should be aware of.
The good news is that Linamar 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.