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. 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. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
In contrast to all that, many investors prefer to focus on companies like EOG Resources (NYSE:EOG), which has not only revenues, but also profits. 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 EOG Resources Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that EOG Resources has managed to grow EPS by 35% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. The music to the ears of EOG Resources shareholders is that EBIT margins have grown from 24% to 33% in the last 12 months and revenues are on an upwards trend as well. 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.
Fortunately, we've got access to analyst forecasts of EOG Resources' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are EOG Resources 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Insider selling of EOG Resources shares was insignificant compared to the one buyer, over the last twelve months. Namely, Independent Director Michael Kerr out-laid US$4.3m for shares, at about US$86.00 per share. That can definitely be seen as a sign of conviction.
The good news, alongside the insider buying, for EOG Resources bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$273m. While that is a lot of skin in the game, we note this holding only totals to 0.3% of the business, which is a result of the company being so large. This should still be a great incentive for management to maximise shareholder value.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Ezra Yacob, is paid less than the median for similar sized companies. The median total compensation for CEOs of companies similar in size to EOG Resources, with market caps over US$8.0b, is around US$13m.
The EOG Resources CEO received US$9.8m in compensation for the year ending December 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Is EOG Resources Worth Keeping An Eye On?
If you believe that share price follows earnings per share you should definitely be delving further into EOG Resources' strong EPS growth. Better still, insiders own a large chunk of the company and one has even been buying more shares. These things considered, this is one stock worth watching. It is worth noting though that we have found 2 warning signs for EOG Resources (1 makes us a bit uncomfortable!) that you need to take into consideration.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of EOG Resources, you'll probably love this free list of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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