Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Postal Realty Trust (NYSE:PSTL). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Commendations have to be given in seeing that Postal Realty Trust grew its EPS from US$0.00068 to US$0.096, in one short year. Even though that growth rate may not be repeated, that looks like a breakout improvement. This could point to the business hitting a point of inflection.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Not all of Postal Realty Trust's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. Postal Realty Trust maintained stable EBIT margins over the last year, all while growing revenue 53% to US$43m. That's progress.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
NYSE:PSTL Earnings and Revenue History July 20th 2022
Are Postal Realty Trust Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
The good news is that Postal Realty Trust insiders spent a whopping US$1.0m on stock in just one year, without so much as a single sale. The shareholders within the general public should find themselves expectant and certainly hopeful, that this large outlay signals prescient optimism for the business. We also note that it was the CEO & Director, Andrew Spodek, who made the biggest single acquisition, paying US$1m for shares at about US$17.00 each.
On top of the insider buying, it's good to see that Postal Realty Trust insiders have a valuable investment in the business. To be specific, they have US$21m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 5.8% of the company, demonstrating a degree of high-level alignment with shareholders.
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because Postal Realty Trust's CEO, Andrew Spodek, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Postal Realty Trust with market caps between US$200m and US$800m is about US$2.9m.
Postal Realty Trust's CEO took home a total compensation package worth US$2.4m in the year leading up to December 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.
Does Postal Realty Trust Deserve A Spot On Your Watchlist?
Postal Realty Trust's earnings per share have been soaring, with growth rates sky high. Just as heartening; insiders both own and are buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Postal Realty Trust belongs near the top of your watchlist. Even so, be aware that Postal Realty Trust is showing 4 warning signs in our investment analysis, and 2 of those can't be ignored...
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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