Here's Why We Think Wheaton Precious Metals (TSE:WPM) Is Well Worth Watching
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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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Wheaton Precious Metals (TSE:WPM). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
View our latest analysis for Wheaton Precious Metals
How Fast Is Wheaton Precious Metals Growing Its Earnings Per Share?
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 the hint of a smile on a face that I love, growing EPS generally makes me look twice. It is therefore awe-striking that Wheaton Precious Metals's EPS went from US$0.15 to US$0.94 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Wheaton Precious Metals's EBIT margins have actually improved by 19.4 percentage points in the last year, to reach 29%, but, on the flip side, revenue was down 2.9%. That's not ideal.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Wheaton Precious Metals EPS 100% free.
Are Wheaton Precious Metals Insiders Aligned With All Shareholders?
Since Wheaton Precious Metals has a market capitalization of US$14b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. To be specific, they have US$17m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.1% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations over US$8.0b, like Wheaton Precious Metals, the median CEO pay is around US$6.6m.
The Wheaton Precious Metals CEO received US$4.4m in compensation for the year ending December 2018. That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Does Wheaton Precious Metals Deserve A Spot On Your Watchlist?
Wheaton Precious Metals's earnings per share have taken off like a rocket aimed right at the moon. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The sharp increase in earnings could signal good business momentum. Wheaton Precious Metals certainly ticks a few of my boxes, so I think it's probably well worth further consideration. If you think Wheaton Precious Metals 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.
Although Wheaton Precious Metals 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
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
