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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
In contrast to all that, I prefer to spend time on companies like Fortune Brands Home & Security (NYSE:FBHS), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Check out our latest analysis for Fortune Brands Home & Security
How Quickly Is Fortune Brands Home & Security Increasing Earnings Per Share?
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. It certainly is nice to see that Fortune Brands Home & Security has managed to grow EPS by 19% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Fortune Brands Home & Security maintained stable EBIT margins over the last year, all while growing revenue 23% to US$7.0b. That's progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Fortune Brands Home & Security's forecast profits?
Are Fortune Brands Home & Security Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$14b company like Fortune Brands Home & Security. But we do take comfort from the fact that they are investors in the company. Given insiders own a small fortune of shares, currently valued at US$51m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. I discovered that the median total compensation for the CEOs of companies like Fortune Brands Home & Security, with market caps over US$8.0b, is about US$11m.