It’s common for many investors, especially inexperienced ones, to buy stocks in companies with good histories, even when those companies are making losses. But as Peter Lynch said in One Up On Wall Street, “Long shots almost never pay off.” While a well-financed company can suffer losses for years, eventually it must turn a profit or investors move on and the company withers.
In contrast, many investors prefer to focus on companies like Beacon Roofing Supply (NASDAQ:BECN), which not only generates revenue but also profits. While that doesn’t necessarily indicate that it’s undervalued, the company’s profitability is enough to warrant some appreciation — especially as it grows.
Check out our latest analysis for Beacon Roofing Supply
How Fast Is Beacon Roofing Supply’s Earnings Per Share Growing?
Beacon Roofing Supply has experienced massive earnings per share growth over the past three years. So much so that that three-year growth rate wouldn’t be a fair estimate of the company’s future. So it makes sense to focus on more recent growth rates instead. Impressively, Beacon Roofing Supply’s earnings per share rose from $3.11 to $5.90 over the trailing 12 months. Annual growth of 90% is certainly a sight to behold.
A careful look at revenue growth and earnings before interest and taxes (EBIT) margins can help give a sense of the sustainability of recent earnings growth. EBIT margins for Beacon Roofing Supply were fairly flat over the past year, but the company should be pleased to report revenue grew 20% to $8.4 billion for the period. That’s progress.
In the chart below, you can see the company’s revenue and earnings growth trend. To see the actual numbers, click on the chart.
NasdaqGS:BECN earnings and revenue history April 16, 2023
Although we live in the present moment, there is little doubt that the future is most important in the investment decision-making process. So why not check out this interactive chart of future EPS estimates for Beacon Roofing Supply?
Are Beacon Roofing Supply Insiders Agreed With All Shareholders?
It is said that without fire there is no smoke. For investors, insider buying is often the smoke that signals which stocks could set the market on fire. This view is based on the possibility that buying stocks on behalf of the buyer signals bullishness. However, insiders are sometimes wrong, and we don’t know the exact thinking behind their acquisitions.
While some insiders sold some of their stakes in Beacon Roofing Supply, a single insider trumped that with significant stock purchases. In fact, company insider Martin Harrell threw his money at the stake, paying $750,000 at an average price of $58.34 per share. It’s hard to ignore such messages.
In addition to the insider buying, another encouraging sign for Beacon Roofing Supply is that insiders, as a group, hold a sizeable stake. In fact, her involvement is estimated at $21 million. This sizeable investment should help increase the company’s long-term value. Though their ownership is just 0.5%, there’s still a significant amount at stake to encourage the company to maintain a strategy that adds value to shareholders.
While insiders already own a significant number of shares and have bought more, the good news for common shareholders doesn’t stop there. That’s because, according to our analysis, the CEO, Julian Francis, is paid less than the median for companies of a similar size. The average total compensation for CEOs of companies similar in size to Beacon Roofing Supply with market caps between $2.0 billion and $6.4 billion is approximately $6.8 million.
The CEO of Beacon Roofing Supply took home a total compensation package worth $5.9 million in the year leading up to December 2022. That’s below average for similarly sized companies and seems pretty reasonable. CEO pay levels aren’t the most important metric for investors, but when pay is modest, it supports better alignment between the CEO and common shareholders. In general, it can be argued that a reasonable salary reflects good decision-making.
Does Beacon Roofing Supply deserve a spot on your watch list?
Beacon Roofing Supply earnings per share growth has increased significantly. The icing on the cake is that insiders own a number of shares and bought one more. These factors seem to point to the company’s potential and indicate that it has reached an inflection point. We would suggest Beacon Roofing Supply is at the top of your watch list. Don’t forget that there can still be risks. For example, we have identified 1 Beacon Roofing Supply warning label that you should be aware of.
Enthusiastic growth investors love insider buying. Thankfully, Beacon Roofing Supply isn’t the only one. You can see a free list of them here.
Please note that the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
What are the risks and opportunities for Beacon Roofing Supply?
Beacon Roofing Supply, Inc., together with its subsidiaries, distributes residential and non-residential roofing materials and ancillary building products to contractors, builders, builders, lumberjacks and retailers throughout the United States and Canada.show more
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Trading 38.5% below our estimate of fair value
Earnings growth is forecast at 6.11% per year
Revenue increased 73.8% over the past year
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This Simply Wall St article is of a general nature. We provide comments based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.