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.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
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 PPL (NYSE:PPL). 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.
How Fast Is PPL Growing Its Earnings Per Share?
In the last three years PPL's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. To the delight of shareholders, PPL's EPS soared from US$1.03 to US$1.34, over the last year. That's a fantastic gain of 30%.
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 PPL achieved similar EBIT margins to last year, revenue grew by a solid 5.6% to US$8.7b. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
View our latest analysis for PPL
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of PPL's forecast profits?
Are PPL Insiders Aligned With All Shareholders?
Since PPL has a market capitalisation of US$25b, we wouldn't expect insiders to hold a large percentage of shares. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. To be specific, they have US$33m worth of shares. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 0.1%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Our quick analysis into CEO remuneration would seem to indicate they are. For companies with market capitalisations over US$8.0b, like PPL, the median CEO pay is around US$14m.
PPL offered total compensation worth US$11m to its CEO in the year to December 2024. That comes in below the average for similar sized companies and seems pretty reasonable. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Does PPL Deserve A Spot On Your Watchlist?
You can't deny that PPL has grown its earnings per share at a very impressive rate. That's attractive. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. This may only be a fast rundown, but the key takeaway is that PPL is worth keeping an eye on. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for PPL (1 makes us a bit uncomfortable) 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.
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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.