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華爾街日報If EPS Growth Is Important To You, Compass Group (LON:CPG) Presents An Opportunity
Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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.
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 Compass Group (LON:CPG). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Compass Group with the means to add long-term value to shareholders.
How Quickly Is Compass Group Increasing Earnings Per Share?
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) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years Compass Group grew its EPS by 16% 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. EBIT margins for Compass Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 9.7% to US$46b. 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.
See our latest analysis for Compass Group
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Compass Group's future profits.
Are Compass Group Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a UK£40b company like Compass Group. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. As a matter of fact, their holding is valued at US$25m. This considerable investment should help drive long-term value in the business. Despite being just 0.06% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Is Compass Group Worth Keeping An Eye On?
As previously touched on, Compass Group is a growing business, which is encouraging. For those who are looking for a little more than this, the high level of insider ownership enhances our enthusiasm for this growth. The combination definitely favoured by investors so consider keeping the company on a watchlist. We don't want to rain on the parade too much, but we did also find 2 warning signs for Compass Group that you need to be mindful of.
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of British companies which have demonstrated growth backed by significant insider holdings.
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.