It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
In contrast to all that, many investors prefer to focus on companies like Gibraltar Industries (NASDAQ:ROCK), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Gibraltar Industries with the means to add long-term value to shareholders.
See our latest analysis for Gibraltar Industries
Gibraltar Industries' Earnings Per Share Are Growing
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. We can see that in the last three years Gibraltar Industries grew its EPS by 13% per year. That growth rate is fairly good, assuming the company can keep it up.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. While we note Gibraltar Industries achieved similar EBIT margins to last year, revenue grew by a solid 11% to US$1.4b. That's a real positive.
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.
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 Gibraltar Industries' future EPS 100% free.
Are Gibraltar Industries 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Belief in the company remains high for insiders as there hasn't been a single share sold by the management or company board members. But the real excitement comes from the US$136k that Independent Director Linda Myers spent buying shares (at an average price of about US$41.99). Strong buying like that could be a sign of opportunity.
The good news, alongside the insider buying, for Gibraltar Industries bulls is that insiders (collectively) have a meaningful investment in the stock. As a matter of fact, their holding is valued at US$15m. That's a lot of money, and no small incentive to work hard. Despite being just 0.9% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because Gibraltar Industries' CEO, Bill Bosway, is paid at a relatively modest level when compared to other CEOs for companies of this size. The median total compensation for CEOs of companies similar in size to Gibraltar Industries, with market caps between US$1.0b and US$3.2b, is around US$5.3m.
The Gibraltar Industries CEO received US$4.0m in compensation for the year ending December 2021. That is actually below the median for CEO's of similarly sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Does Gibraltar Industries Deserve A Spot On Your Watchlist?
One important encouraging feature of Gibraltar Industries is that it is growing profits. In addition, insiders have been busy adding to their sizeable holdings in the company. That makes the company a prime candidate for your watchlist - and arguably a research priority. If you think Gibraltar Industries might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.
The good news is that Gibraltar Industries 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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