Yahoo Finance Here's Why I Think Pennon Group (LON:PNN) Is An Interesting Stock
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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Pennon Group (LON:PNN). 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.
Check out our latest analysis for Pennon Group
How Quickly Is Pennon Group Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Pennon Group has grown EPS by 14% per year. That's a pretty good rate, if the company can sustain it.
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. It seems Pennon Group is pretty stable, since revenue and EBIT margins are pretty flat year on year. That's not bad, but it doesn't point to ongoing future growth, either.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Pennon Group?
Are Pennon Group Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
The good news for Pennon Group shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Senior Independent Director Gill Rider bought UK£18k worth of shares at an average price of around UK£7.07.
I do like that insiders have been buying shares in Pennon Group, but there is more evidence of shareholder friendly management. I refer to the very reasonable level of CEO pay. I discovered that the median total compensation for the CEOs of companies like Pennon Group with market caps between UK£3.2b and UK£9.6b is about UK£2.7m.
The Pennon Group CEO received UK£1.4m in compensation for the year ending . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I'd also argue reasonable pay levels attest to good decision making more generally.
Does Pennon Group Deserve A Spot On Your Watchlist?
As I already mentioned, Pennon Group is a growing business, which is what I like to see. And that's not all, folks. We've also seen insiders buying stock, and noted modest executive pay. The sum of all that, for me, points to a quality business, and a genuine prospect for further research. Still, you should learn about the 1 warning sign we've spotted with Pennon Group .
The good news is that Pennon Group is not the only growth stock with insider buying. Here's a list of them... 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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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