For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and 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.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Broadcom (NASDAQ:AVGO). 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.
How Fast Is Broadcom Growing Its Earnings Per Share?
In the last three years Broadcom's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. To the delight of shareholders, Broadcom's EPS soared from US$23.98 to US$33.60, over the last year. That's a fantastic gain of 40%.
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. The good news is that Broadcom is growing revenues, and EBIT margins improved by 5.0 percentage points to 46%, over the last year. That's great to see, on both counts.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Broadcom's forecast profits?
Are Broadcom Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$342b company like Broadcom. But we are reassured by the fact they have invested in the company. Notably, they have an enviable stake in the company, worth US$5.0b. This suggests that leadership will be very mindful of shareholders' interests when making decisions!
Is Broadcom Worth Keeping An Eye On?
If you believe that share price follows earnings per share you should definitely be delving further into Broadcom's strong EPS growth. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Broadcom's continuing strength. The growth and insider confidence is looked upon well and so it's worthwhile to investigate further with a view to discern the stock's true value. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Broadcom , and understanding it should be part of your investment process.
Although Broadcom certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
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.