It is not uncommon for many investors, especially inexperienced ones, to buy shares of companies with a good history even when those companies are losing money. Unfortunately, these high-risk investments often have little chance of paying off, and many investors pay the price to learn the lesson. While a well-funded company may continue to lose money for years, it must eventually make a profit or the investors will leave and the company will die.
Despite the blissful era of investing in technology stocks, many investors are still using a more traditional strategy, buying stocks in profitable companies like Chevron (NYSE:CVX). While this doesn’t necessarily mean it’s undervalued, the business is profitable enough to justify some valuation, especially if it grows.
Chevron has seen significant earnings-per-share growth over the past three years. So much so that these three-year growth rates are not a fair estimate of the company’s future. Thus, we are going to increase last year’s growth. Over the past 12 months, Chevron’s earnings per share have risen from an impressive $8.16 to $18.72. It is not uncommon for a company to grow 130% year on year. Shareholders hope this is a sign that the company has reached a tipping point.
One way to carefully examine a company’s growth is to look at changes in its revenue and earnings before interest and taxes (EBIT). It’s worth noting that Chevron’s operating income is lower than its revenue over the past 12 months, so this could skew our profitability analysis. Chevron shareholders can rest assured that EBIT margins have risen from 13% to 20% and earnings are rising. Good to see on both fronts.
In the chart below, you can see how the company has increased its earnings and earnings over time. Click on the image for more details.
While we live in the present, there is no doubt that the future is of paramount importance in the process of making investment decisions. So why not check out this interactive chart showing Chevron’s future per-share valuations?
Given Chevron’s $320 billion market cap, we don’t expect insiders to own a significant percentage of the stock. But we are comforted by the fact that they are investors in the company. Given that insiders own a large stake, which is currently worth $52 million, they have a lot of incentives for business success. This is certainly enough to let shareholders know that management will be very focused on long-term growth.
Chevron’s earnings-per-share growth has grown at a respectable pace. This growth has been impressive, and significant insider investment will no doubt add to the company’s brilliance. The hope, of course, is that strong growth signals a fundamental improvement in business economics. Based on the sum of its parts, we definitely think Chevron is worth keeping an eye on. Notably, we found 1 Chevron Warning Sign that you need to consider.
The beauty of investing is that you can invest in almost any company. But if you’d rather focus on stocks showing insider buying, here’s a list of companies that have bought insider in the past three months.
Please note that insider trading discussed in this article refers to transactions subject to registration in the relevant jurisdictions.
Any feedback on this article? Worried about content? Contact us directly. Alternatively, send an email to the editors at (at) Simplywallst.com. This “Just Wall Street” article is general. We use only an unbiased methodology to provide reviews based on historical data and analyst forecasts, and our articles are not intended to provide financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or your financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest announcements of price-sensitive companies or quality materials. Simply Wall St has no positions in any of the stocks mentioned.
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Post time: Apr-24-2023