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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.  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 TopBuild (NYSE:BLD), which has not only revenues, but also profits.  While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

How Quickly Is TopBuild Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes.  That makes EPS growth an attractive quality for any company.   Recognition must be given to the that TopBuild has grown EPS by 37% per year, over the last three years.  That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.  

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth.    EBIT margins for TopBuild remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 3.7% to US$5.2b.  That's progress.  

The chart below shows how the company's bottom and top lines have progressed over time.  To see the actual numbers, click on the chart.

NYSE:BLD Earnings and Revenue History April 24th 2024

Fortunately, we've got access to analyst forecasts of TopBuild's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are TopBuild Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$13b company like TopBuild.  But we do take comfort from the fact that they are investors in the company.     With a whopping US$63m worth of shares as a group, insiders have plenty riding on the company's success.   That's certainly enough to let shareholders know that management will be very focussed on long term growth.  

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest.  Well, based on the CEO pay, you'd argue that they are indeed.    Our analysis has discovered that the median total compensation for the CEOs of companies like TopBuild, with market caps over US$8.0b, is about US$14m.  

The TopBuild CEO received US$7.8m in compensation for the year ending December 2023.  That is actually below the median for CEO's of similarly sized companies.   CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests.  It can also be a sign of a culture of integrity, in a broader sense.

Should You Add TopBuild To Your Watchlist?

TopBuild's earnings per share growth have been climbing higher at an appreciable rate.   An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management.  The drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future.  TopBuild is certainly doing some things right and is well worth investigating.     We don't want to rain on the parade too much, but we did also find 1 warning sign for TopBuild 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.