Like a puppy chasing its tail, some new investors often chase ‘the next big thing’, even if that means buying ‘story stocks’ without revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Beacon Roofing Supply (NASDAQ:BECN). While profit is not necessarily a social good, it’s easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.
Check out our latest analysis for Beacon Roofing Supply
Beacon Roofing Supply’s Improving Profits
In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. You can imagine, then, that it almost knocked my socks off when I realized that Beacon Roofing Supply grew its EPS from US$1.24 to US$4.05, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company’s growth. Beacon Roofing Supply shareholders can take confidence from the fact that EBIT margins are up from 4.5% to 8.1%, and revenue is growing. That’s great to see, on both counts.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
NasdaqGS:BECN Earnings and Revenue History May 29th 2022
In investing, as in life, the future matters more than the past. So why not check this out free interactive visualization of Beacon Roofing Supply’s forecast profits?
Are Beacon Roofing Supply Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, 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.
Despite -US$143k worth of sales, Beacon Roofing Supply insiders have overwhelmingly been buying the stock, spending US$344k on purchases in the last twelve months. On balance, to me, this signals their optimism. Zooming in, we can see that the biggest insider purchase was by President Julian Francis for US$245k worth of shares, at about US$48.90 per share.
Along with the insider buying, another encouraging sign for Beacon Roofing Supply is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$29m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.7% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Julian Francis is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like Beacon Roofing Supply with market caps between US$2.0b and US$6.4b is about US$6.6m.
The Beacon Roofing Supply CEO received US$5.7m in compensation for the year ending. That comes in below the average for similar sized companies, and seems pretty reasonable to me. While the level of CEO compensation isn’t a huge factor in my view of the company, modest remuneration is a positive one, because it suggests that the board keeps shareholder interests in mind. I’d also argue reasonable pay levels attest to good decision making more generally.
Does Beacon Roofing Supply Deserve A Spot On Your Watchlist?
Beacon Roofing Supply’s earnings per share have taken off like a rocket aimed right at the moon. Just as heartening; Insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Beacon Roofing Supply deserves timely attention. You still need to take note of risks, for example – Beacon Roofing Supply has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.
The good news is that Beacon Roofing Supply 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.