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 completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?’ Leuz et. al. found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like MGM Growth Properties (NYSE:MGP). 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.
Check out our latest analysis for MGM Growth Properties
How Fast Is MGM Growth Properties Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It’s no surprise, then, that I like to invest in companies with EPS growth. Impressively, MGM Growth Properties has grown EPS by 25% per year, compound, in the last three years. As a general rule, we’d say that if a company can keep up that sort of growth, shareholders will be smiling.
One way to double-check a company’s growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Not all of MGM Growth Properties’s revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I’ve used might not be the best representation of the underlying business. MGM Growth Properties’s EBIT margins have actually improved by 27.2 percentage points in the last year, to reach 69%, but, on the flip side, revenue was down 2.4%. That’s not ideal.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
NYSE:MGP Earnings and Revenue History June 13th 2021
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of MGM Growth Properties’s forecast profits?
Are MGM Growth Properties Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$9.8b company like MGM Growth Properties. But we are reassured by the fact they have invested in the company. Indeed, they hold US$19m worth of its stock. That’s a lot of money, and no small incentive to work hard. Despite being just 0.2% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
It’s good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations over US$8.0b, like MGM Growth Properties, the median CEO pay is around US$11m.
The MGM Growth Properties CEO received total compensation of just US$4.2m in the year to . That’s clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.
Does MGM Growth Properties Deserve A Spot On Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about MGM Growth Properties’s strong EPS growth. If that’s not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. Each to their own, but I think all this makes MGM Growth Properties look rather interesting indeed. Before you take the next step you should know about the 3 warning signs for MGM Growth Properties (1 is a bit unpleasant!) that we have uncovered.
Although MGM Growth Properties certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you’re looking for.
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. 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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