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Should You Be Adding Tenet Healthcare (NYSE:THC) To Your Watchlist Today?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Tenet Healthcare (NYSE:THC). 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.

View our latest analysis for Tenet Healthcare

Tenet Healthcare's Improving Profits

Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. Which is why EPS growth is looked upon so favourably. It's an outstanding feat for Tenet Healthcare to have grown EPS from US$3.92 to US$26.81 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future.

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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. While we note Tenet Healthcare achieved similar EBIT margins to last year, revenue grew by a solid 7.4% to US$21b. That's encouraging news for the company!

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.

earnings-and-revenue-history
earnings-and-revenue-history

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Tenet Healthcare's future EPS 100% free.

Are Tenet Healthcare Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$13b company like Tenet Healthcare. But we are reassured by the fact they have invested in the company. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$151m. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

Is Tenet Healthcare Worth Keeping An Eye On?

Tenet Healthcare's earnings have taken off in quite an impressive fashion. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. Based on the sum of its parts, we definitely think its worth watching Tenet Healthcare very closely. However, before you get too excited we've discovered 4 warning signs for Tenet Healthcare (1 makes us a bit uncomfortable!) that you should be aware of.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in the US with promising growth potential and insider confidence.

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.