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In the investment world, the pursuit of the "next big thing" often leads investors to buy into "story stocks"—companies with captivating narratives but little to no revenue or profit. As Peter Lynch famously remarked in "One Up On Wall Street," "Long shots almost never pay off." Loss-making companies must eventually prove their worth through profitability, as external funding cannot sustain them indefinitely.
Despite the allure of speculative tech stocks, many investors continue to favor a more traditional strategy: investing in profitable companies like Brambles (ASX: BXB). Profit isn't the only metric to consider, but consistently profitable businesses like Brambles are worth recognising.
Brambles' Earnings Growth
The market tends to reflect short-term sentiments but ultimately aligns with a company's long-term earnings per share (EPS) performance. Therefore, EPS growth is a crucial indicator for investors. Over the past three years, Brambles has achieved an EPS growth rate of 13% per year, a commendable rate if maintained.
Examining revenue growth alongside earnings before interest and taxation (EBIT) margins provides insight into the sustainability of profit growth. Brambles' revenue grew by a robust 10% to US$6.7 billion last year, while maintaining similar EBIT margins to the previous year. This indicates a positive trend, suggesting the company's profit growth is underpinned by solid revenue increases.
Insider Confidence
Insider buying often signals confidence in a company's future performance, and Brambles has seen significant insider interest. Over the past twelve months, insiders have invested US$322,000 in company shares. Notably, Independent Non-Executive Chairman John Mullen made the largest purchase, acquiring AU$150,000 worth of shares at AU$13.14 each. This lack of insider selling and continued insider buying bodes well for shareholder confidence.
Sustainability and Future Outlook
Sustained EPS growth is an encouraging sign for Brambles. The company's ability to grow earnings consistently sets it apart from many others. The recent insider acquisitions highlight a strong belief in the company's future performance, making Brambles an attractive option for investors seeking stable, long-term growth.
While predicting future performance is inherently uncertain, consensus analyst forecasts can provide some guidance. These forecasts, available in detailed visualisations, offer valuable insights into the expected trajectory of Brambles' EPS.
