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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In contrast to all that, I prefer to spend time on companies like Commonwealth Bank of Australia (ASX:CBA), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Quickly Is Commonwealth Bank of Australia Increasing Earnings Per Share?
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. We can see that in the last three years Commonwealth Bank of Australia grew its EPS by 4.5% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
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. I note that Commonwealth Bank of Australia's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Commonwealth Bank of Australia maintained stable EBIT margins over the last year, all while growing revenue 19% to AU$25b. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Commonwealth Bank of Australia.
Are Commonwealth Bank of Australia Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a AU$174b company like Commonwealth Bank of Australia. But we are reassured by the fact they have invested in the company. Notably, they have an enormous stake in the company, worth AU$316m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
Should You Add Commonwealth Bank of Australia To Your Watchlist?
One positive for Commonwealth Bank of Australia is that it is growing EPS. That's nice to see. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. You should always think about risks though. Case in point, we've spotted 3 warning signs for Commonwealth Bank of Australia you should be aware of, and 1 of them is potentially serious.
Although Commonwealth Bank of Australia certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.