Yahoo Finance Here's Why Lloyds Banking Group (LON:LLOY) Has Caught The Eye Of Investors
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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
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 Lloyds Banking Group (LON:LLOY). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Lloyds Banking Group with the means to add long-term value to shareholders.
See our latest analysis for Lloyds Banking Group
Lloyds Banking Group's Earnings Per Share Are Growing
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Recognition must be given to the that Lloyds Banking Group has grown EPS by 54% per year, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.
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. It's noted that Lloyds Banking Group's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. While we note Lloyds Banking Group achieved similar EBIT margins to last year, revenue grew by a solid 6.9% to UK£18b. That's encouraging news for the company!
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
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 Lloyds Banking Group's future profits.
Are Lloyds Banking Group Insiders Aligned With All Shareholders?
Owing to the size of Lloyds Banking Group, we wouldn't expect insiders to hold a significant proportion of the company. But we do take comfort from the fact that they are investors in the company. Indeed, they hold UK£25m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.08% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
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 Lloyds Banking Group, with market caps over UK£6.3b, is around UK£4.5m.
Lloyds Banking Group's CEO took home a total compensation package worth UK£3.8m in the year leading up to December 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Should You Add Lloyds Banking Group To Your Watchlist?
Lloyds Banking Group's earnings have taken off in quite an impressive fashion. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future. Lloyds Banking Group is certainly doing some things right and is well worth investigating. What about risks? Every company has them, and we've spotted 2 warning signs for Lloyds Banking Group you should know about.
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.
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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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