Like a puppy chasing its tail, some new investors often chase ‘the next big thing’, even if that means buying ‘story stocks’ without revenue, let alone profit. But as Warren Buffett has mused, ‘If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.’ When they buy such story stocks, investors are all too often the patsy.
So if you’re like me, you might be more interested in profitable, growing companies, like Meta Platforms (NASDAQ:FB). While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Quickly Is Meta Platforms Increasing Earnings Per Share?
If you believe that markets are even vaguely efficient, then over the long term you’d expect a company’s share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. As a tree reaches steadily for the sky, Meta Platforms’s EPS has grown 24% each year, compound, over three years. If the company can sustain that sort of growth, we’d expect shareholders to come away winners.
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. Meta Platforms maintained stable EBIT margins over the last year, all while growing revenue 37% to US$118b. That’s a real positive.
The chart below shows how the company’s bottom and top lines have progressed over time.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past.
Are Meta Platforms Insiders Aligned With All Shareholders?
Since Meta Platforms has a market capitalization of US$584b, we wouldn’t expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$92b. That equates to 16% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.
Is Meta Platforms Worth Keeping An Eye On?
You can’t deny that Meta Platforms has grown its earnings per share at a very impressive rate. That’s attractive. Further, the high level of insider ownership impresses me, and suggests that I’m not the only one who appreciates the EPS growth. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. Even so, be aware that Meta Platforms is showing 1 warning sign in our investment analysis , you should know about…