It’s only natural that many investors, especially those who are new to the game, prefer to buy shares in ‘sexy’ stocks with a good story, even if those businesses lose money. 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.
So if you’re like me, you might be more interested in profitable, growing companies, like Pfizer (NYSE:PFE). Now, I’m not saying that the stock is necessarily undervalued today; but I can’t shake an appreciation for the profitability of the business itself. 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 Pfizer Growing?
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). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Pfizer has grown EPS by 35% per year, compound, in the last 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. Pfizer’s EBIT margins are flat but, of some concern, its revenue is actually down. Suffice it to say that is not a great sign of growth.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Fortunately, we’ve got access to analyst forecasts of Pfizer’s future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Pfizer Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
Pfizer top brass are certainly in sync, not having sold any shares, over the last year. But the bigger deal is that the , Scott Gottlieb, paid US$141k to buy shares at an average price of US$35.29.
The good news, alongside the insider buying, for Pfizer bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$119m. This suggests to me that leadership will be very mindful of shareholders’ interests when making decisions!
Does Pfizer Deserve A Spot On Your Watchlist?
You can’t deny that Pfizer has grown its earnings per share at a very impressive rate. That’s attractive. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So I do think this is one stock worth watching. Before you take the next step you should know about the 1 warning sign for Pfizer that we have uncovered.
As a growth investor I do like to see insider buying. But Pfizer isn’t the only one. You can see a a free list of them here.
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 firstname.lastname@example.org. 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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