Investors are often guided by the idea of discovering ‘the next big thing’, even if that means buying ‘story stocks’ without any revenue, let alone profit. 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.
If this kind of company isn’t your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Wells Fargo (NYSE:WFC). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Wells Fargo with the means to add long-term value to shareholders.
How Quickly Is Wells Fargo Increasing Earnings Per Share?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Wells Fargo managed to grow EPS by 5.9% per year, over three years. This may not be setting the world alight, but it does show that EPS is on the upwards trend.
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. It’s noted that Wells Fargo’s revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Wells Fargo reported flat revenue and EBIT margins over the last year. That’s not bad, but it doesn’t point to ongoing future growth, either.
The chart below shows how the company’s bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
Are Wells Fargo Insiders Aligned With All Shareholders?
Since Wells Fargo has a market capitalisation of US$241b, 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. Notably, they have an enviable stake in the company, worth US$307m. This comes in at 0.1% of shares in the company, which is a fair amount of a business of this size. So despite their percentage holding being low, company management still have plenty of reasons to deliver the best outcomes for investors.
Should You Add Wells Fargo To Your Watchlist?
One positive for Wells Fargo is that it is growing EPS. That’s nice to see. If that’s not enough on its own, there is also the rather notable levels of insider ownership. The combination definitely favoured by investors so consider keeping the company on a watchlist. We don’t want to rain on the parade too much, but we did also find 1 warning sign for Wells Fargo that you need to be mindful of.
Although Wells Fargo certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of companies that not only boast of strong growth but have strong insider backing.