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. 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. 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.
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 this doesn’t necessarily speak to whether it’s undervalued, the profitability of the business is enough to warrant some appreciation – especially if its growing.
View our latest analysis for Linamar
How Fast Is Linamar Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Linamar has managed to grow EPS by 24% per year 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.
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. Linamar maintained stable EBIT margins over the last year, all while growing revenue 23% to CA$9.7b. That’s encouraging news for the company!
In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.
Fortunately, we’ve got access to analyst forecasts of Linamar’s future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Linamar 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, 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$873k) this was overshadowed by a mountain of buying, totalling CA$3.1m in just one year. This bodes well for Linamar as it highlights the fact that those who are important to the company having a lot of faith in its future. Zooming in, we can see that the biggest insider purchase was by Executive Chairman of the Board & CEO Linda Hasenfratz for CA$2.9m worth of shares, at about CA$57.89 per share.
The good news, alongside the insider buying, for Linamar bulls is that insiders (collectively) have a meaningful investment in the stock. Notably, they have an enviable stake in the company, worth CA$1.5b. That equates to 34% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.
Is Linamar Worth Keeping An Eye On?
If you believe that share price follows earnings per share you should definitely be delving further into Linamar’s strong EPS growth. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. So it’s fair to say that this stock may well deserve a spot on your watchlist. It’s still necessary to consider the ever-present spectre of investment risk. We’ve identified 1 warning sign with Linamar , and understanding it should be part of your investment process.
The good news is that Linamar is not the only growth stock with insider buying. Here’s a list of growth-focused companies in CA 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.