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.  But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'  A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Frontdoor (NASDAQ:FTDR), which has not only revenues, but also profits.  Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Frontdoor with the means to add long-term value to shareholders.

Frontdoor's Earnings Per Share Are Growing

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price.  Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS.   It certainly is nice to see that Frontdoor has managed to grow EPS by 24% per year over three years.   If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.  

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth.    The good news is that Frontdoor is growing revenues, and EBIT margins improved by 5.0 percentage points to 16%, 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.

NasdaqGS:FTDR Earnings and Revenue History May 22nd 2024

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Frontdoor's forecast profits?

Are Frontdoor Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners.  Shareholders will be pleased by the fact that insiders own Frontdoor shares worth a considerable sum.     As a matter of fact, their holding is valued at US$15m.  That shows significant buy-in, and may indicate conviction in the business strategy.   Even though that's only about 0.6% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.  

Is Frontdoor Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Frontdoor's strong EPS growth.   This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares.  On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research.     We don't want to rain on the parade too much, but we did also find 1 warning sign for Frontdoor that you need to be mindful of.  

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in the US with promising growth potential and insider confidence.

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.