Investors are often driven by the idea of discovering “the next big thing”, even if that means buying “historic stocks” without any income, let alone profit. But as Peter Lynch said in One Up on Wall Street, “Long shots almost never pay off.” A loss-making company has not yet proven itself with profits, and eventually the inflow of external capital may dry up.
If this type of business isn’t your style, and you like businesses that generate revenue or even profit, then you might be interested in MasterCard (NYSE: MA). While profit isn’t the only metric to consider when investing, it’s worth recognizing companies that can consistently produce it.
See our latest analysis for Mastercard
How fast is Mastercard growing?
If you think markets are even remotely efficient, you expect a company’s share price to follow its earnings-per-share (EPS) performance over the long term. Therefore, there are many investors who like to buy shares in companies that grow EPS. Shareholders will be pleased to know that Mastercard’s EPS grew 17% annually, compounded, over three years. If the company can sustain this type of growth, we expect shareholders to come away satisfied.
One way to check a company’s growth is to look at the evolution of its revenues and its earnings before interest and taxes (EBIT) margins. Mastercard shareholders can be confident that EBIT margins have fallen from 53% to 56% and revenue is growing. These are two great indicators to check for potential growth.
The chart below shows how the company’s top and bottom line has grown over time. To see the actual numbers, click on the chart.
Of course, the trick is to find stocks that have their best days in the future, not in the past. You can of course base your opinion on past performance, but you can also check out this interactive chart of EPS forecasts from professional analysts for Mastercard.
Are Mastercard Insiders Aligned with All Shareholders?
Due to Mastercard’s size, we wouldn’t expect insiders to own a significant share of the company. But we are reassured by the fact that they are investors in the company. Indeed, they have invested considerable wealth in it, currently valued at US$311 million. This amounts to 0.1% of the shares of the company, which is a good share for a company of this size. This should always be a big incentive for management to maximize shareholder value.
Is Mastercard worth watching?
You can’t deny that Mastercard has been growing its earnings per share at a very impressive rate. It’s attractive. With EPS growth rates like this, it’s no surprise to see company executives trusting the company by continuing to hold a large investment. On the balance of its merits, solid EPS growth and company insiders who are aligned with shareholders would indicate a company worthy of further research. However, you should inquire about the 1 warning sign we spotted with Mastercard.
There is always the possibility of doing well by buying stocks that are not increased income and not have insiders buying stocks. But for those who consider these measures important, we encourage you to check out the companies that do have these characteristics. You can access a free list of them here.
Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.