Should You Be Adding Breville Group (ASX:BRG) To Your Watchlist Today?

Simply Wall St

Sun, Jun 30, 2019, 7:33 PM

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

So if you're like me, you might be more interested in profitable, growing companies, like Breville Group (ASX:BRG). While profit is not necessarily a social good, it's easy to admire a business than can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Breville Group

How Quickly Is Breville Group Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Breville Group managed to grow EPS by 11% per year, over three years. That's a good rate of growth, if it can be sustained.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Breville Group's EBIT margins were flat over the last year, revenue grew by a solid 9.7% to AU$711m. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Breville Group.

Are Breville Group Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Although we did see some insider selling (worth -AU$3.6k) this was overshadowed by a mountain of buying, totalling AU$1.2m in just one year. This makes me even more interested in Breville Group because it suggests that those who understand the company best, are optimistic. We also note that it was the Lead Independent Director, Lawrence Myers, who made the biggest single acquisition, paying AU$374k for shares at about AU$12.45 each.

Along with the insider buying, another encouraging sign for Breville Group is that insiders, as a group, have a considerable shareholding. To be specific, they have AU$29m worth of shares. That's a lot of money, and no small incentive to work hard. Despite being just 1.4% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Jim Clayton is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between AU$1.4b and AU$4.6b, like Breville Group, the median CEO pay is around AU$2.4m.

Breville Group offered total compensation worth AU$1.7m to its CEO in the year to June 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Is Breville Group Worth Keeping An Eye On?

As I already mentioned, Breville Group is a growing business, which is what I like to see. Better yet, insiders are significant shareholders, and have been buying more shares. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. If you think Breville Group might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.

The good news is that Breville Group is not the only growth stock with insider buying. Here's a a list of them... with insider buying in the last three months!

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.

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