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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
In contrast to all that, many investors prefer to focus on companies like Invitation Homes (NYSE:INVH), which has not only revenues, but also profits. 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.
View our latest analysis for Invitation Homes
How Fast Is Invitation Homes Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. To the delight of shareholders, Invitation Homes has achieved impressive annual EPS growth of 51%, compound, over the last three years. While that sort of growth rate isn’t sustainable for long, it certainly catches the eye of prospective investors.
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. The good news is that Invitation Homes is growing revenues, and EBIT margins improved by 2.4 percentage points to 29%, over the last year. Ticking those two boxes is a good sign of growth, in our book.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
NYSE:INVH Earnings and Revenue History August 24th 2022
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Invitation Homes’ forecast profits?
Are Invitation Homes Insiders Aligned With All Shareholders?
Since Invitation Homes has a market capitalisation of US$23b, 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. Holding US$51m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. That’s certainly enough to let shareholders know that management will be very focussed on long term growth.
It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Invitation Homes, with market caps over US$8.0b, is about US$13m.
The Invitation Homes CEO received US$9.7m in compensation for the year ending December 2021. That seems pretty reasonable, especially given it’s below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add Invitation Homes To Your Watchlist?
Invitation Homes’ earnings per share have been soaring, with growth rates sky high. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The sharp increase in earnings could signal good business momentum. Invitation Homes certainly ticks a few boxes, so we think it’s probably well worth further consideration. You should always think about risks though. Case in point, we’ve spotted 4 warning signs for Invitation Homes you should be aware of, and 1 of them is concerning.
There’s always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.
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.
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