Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like KeyCorp (NYSE:KEY). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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.
How Fast Is KeyCorp Growing?
As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that KeyCorp has managed to grow EPS by 20% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Not all of KeyCorp's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. KeyCorp reported flat revenue and EBIT margins over the last year. That's not a major concern but nor does it point to the long term growth we like to see.
In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future KeyCorp EPS 100% free.
Are KeyCorp Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$17b company like KeyCorp. But we do take comfort from the fact that they are investors in the company. With a whopping US$83m worth of shares as a group, insiders have plenty riding on the company's success. This should keep them focused on creating long term value for shareholders.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations over US$8.0b, like KeyCorp, the median CEO pay is around US$11m.
KeyCorp offered total compensation worth US$9.1m to its CEO in the year to December 2018. That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.
Is KeyCorp Worth Keeping An Eye On?
You can't deny that KeyCorp has grown its earnings per share at a very impressive rate. That's attractive. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. This may only be a fast rundown, but the takeaway for me is that KeyCorp is worth keeping an eye on. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if KeyCorp is trading on a high P/E or a low P/E, relative to its industry.
You can invest in 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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