For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. 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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
In contrast to all that, many investors prefer to focus on companies like London Stock Exchange Group (LON:LSEG), which has not only revenues, but also profits. 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.
London Stock Exchange Group's Earnings Per Share Are Growing
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, London Stock Exchange Group has grown EPS by 6.9% per year. This may not be setting the world alight, but it does show that EPS is on the upwards trend.
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. Our analysis has highlighted that London Stock Exchange Group's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. On the revenue front, London Stock Exchange Group has done well over the past year, growing revenue by 85% to UK£7.5b but EBIT margin figures were less stellar, seeing a decline over the last 12 months. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.
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.
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 London Stock Exchange Group's future EPS 100% free.
Are London Stock Exchange Group Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
It's nice to see that there have been no reports of any insiders selling shares in London Stock Exchange Group in the previous 12 months. With that in mind, it's heartening that Kathleen DeRose, the Independent Non-Executive Director of the company, paid UK£34k for shares at around UK£68.10 each. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in London Stock Exchange Group.
Should You Add London Stock Exchange Group To Your Watchlist?
One important encouraging feature of London Stock Exchange Group is that it is growing profits. It's not easy for business to grow EPS, but London Stock Exchange Group has shown the strengths to do just that. The cherry on top is that we have an insider buying shares. A further encouragement to keep an eye on this stock. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of London Stock Exchange Group.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of London Stock Exchange Group, you'll probably love this free list of growing companies that insiders are buying.
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.
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