It’s common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
If this kind of company isn’t your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Beacon Roofing Supply (NASDAQ:BECN). 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 Beacon Roofing Supply
How Fast Is Beacon Roofing Supply Growing Its Earnings Per Share?
In the last three years Beacon Roofing Supply’s earnings per share took off; so much so that it’s a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we’ll zoom in on growth over the last year, instead. Outstandingly, Beacon Roofing Supply’s EPS shot from US$5.86 to US$11.82, over the last year. It’s not often a company can achieve year-on-year growth of 102%.
It’s often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company’s growth. While we note Beacon Roofing Supply achieved similar EBIT margins to last year, revenue grew by a solid 4.5% to US$8.8b. That’s a real positive.
The chart below shows how the company’s bottom and top lines have progressed over time. For finer detail, click on the image.
earnings-and-revenue-history
While we live in the present moment, there’s little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Beacon Roofing Supply?
Story continues
Are Beacon Roofing Supply Insiders Aligned With All Shareholders?
It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. Beacon Roofing Supply followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. To be specific, they have US$26m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 0.6%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
It’s good to see that insiders are invested in the company, but are remuneration levels reasonable? Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to Beacon Roofing Supply, with market caps between US$2.0b and US$6.4b, is around US$6.6m.
Beacon Roofing Supply offered total compensation worth US$5.9m to its CEO in the year to December 2022. That is actually below the median for CEO’s of similarly sized companies. While the level of CEO compensation shouldn’t be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Is Beacon Roofing Supply Worth Keeping An Eye On?
Beacon Roofing Supply’s earnings have taken off in quite an impressive fashion. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future. Beacon Roofing Supply certainly ticks a few boxes, so we think it’s probably well worth further consideration. Still, you should learn about the 2 warning signs we’ve spotted with Beacon Roofing Supply (including 1 which doesn’t sit too well with us).
The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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.
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https://finance.yahoo.com/news/now-time-put-beacon-roofing-135715336.html
