It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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 General Motors (NYSE:GM). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
View our latest analysis for General Motors
General Motors's Earnings Per Share Are Growing.
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. As a tree reaches steadily for the sky, General Motors's EPS has grown 31% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. I note that General Motors's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. General Motors's EBIT margins have actually improved by 3.7 percentage points in the last year, to reach 8.9%, but, on the flip side, revenue was down 9.5%. That's not ideal.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for General Motors's future profits.
Are General Motors Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
It's good to see General Motors insiders walking the walk, by spending US$536k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to brim with joyful expectancy. It is also worth noting that it was Independent Director Patricia Russo who made the biggest single purchase, worth US$294k, paying US$23.18 per share.
On top of the insider buying, it's good to see that General Motors insiders have a valuable investment in the business. Notably, they have an enormous stake in the company, worth US$126m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
Is General Motors Worth Keeping An Eye On?
You can't deny that General Motors has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. We don't want to rain on the parade too much, but we did also find 1 warning sign for General Motors that you need to be mindful of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of General Motors, you'll probably love this free list of growing companies that insiders are buying.