For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Exxon Mobil (NYSE:XOM). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
See our latest analysis for Exxon Mobil
Exxon Mobil's Improving Profits
Over the last three years, Exxon Mobil has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. In impressive fashion, Exxon Mobil's EPS grew from US$6.03 to US$15.26, over the previous 12 months. It's not often a company can achieve year-on-year growth of 153%. The best case scenario? That the business has hit a true inflection point.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. The music to the ears of Exxon Mobil shareholders is that EBIT margins have grown from 11% to 19% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Exxon Mobil's forecast profits?
Are Exxon Mobil Insiders Aligned With All Shareholders?
Since Exxon Mobil has a market capitalisation of US$424b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. We note that their impressive stake in the company is worth US$422m. This comes in at 0.1% of shares in the company, which is a fair amount of a business of this size. This should still be a great incentive for management to maximise shareholder value.
Should You Add Exxon Mobil To Your Watchlist?
Exxon Mobil's earnings per share growth have been climbing higher at an appreciable rate. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching Exxon Mobil very closely. We don't want to rain on the parade too much, but we did also find 2 warning signs for Exxon Mobil (1 is a bit concerning!) 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 free list of them here.
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.
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2023-05-29 13:01:06Z
CBMiTmh0dHBzOi8vZmluYW5jZS55YWhvby5jb20vbmV3cy9lcHMtZ3Jvd3RoLWltcG9ydGFudC1leHhvbi1tb2JpbC0xMzAxMDYzMjAuaHRtbNIBVmh0dHBzOi8vZmluYW5jZS55YWhvby5jb20vYW1waHRtbC9uZXdzL2Vwcy1ncm93dGgtaW1wb3J0YW50LWV4eG9uLW1vYmlsLTEzMDEwNjMyMC5odG1s
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