It’s only natural that many investors, especially those new to the game, would prefer to buy “hot” stocks with a good story, even if those companies are losing money. But as Warren Buffett put it, “If you’ve been playing poker for half an hour and you still don’t know who the noise is, you are the noise.” When buying such historical stocks, investors are too often the fools.
In the age of investing in the blue sky of tech stocks, my choice may seem old-fashioned; I always prefer profitable businesses like Kinsale Capital Group (NASDAQ: KNSL). Now, I’m not saying the stock is necessarily undervalued today; but I cannot shake the appreciation of the profitability of the company itself. Loss-making businesses always race against time to achieve financial viability, but time is often the friend of the profitable business, especially if it is growing.
See our latest analysis for Kinsale Capital Group
How fast is the Kinsale Capital group growing?
If you think the markets are even vaguely efficient, then in the long run you would expect a company’s stock price to follow its earnings per share (EPS). So it’s no surprise that I like to invest in companies with growing EPS. For my part, I am blown away by the fact that Kinsale Capital Group has increased its EPS by 59% per year, over the past three years. Such rapid growth may well be fleeting, but like a lotus blooming from a cloudy pond, it arouses the joy of suspicious value-gatherers.
I like to look at earnings before interest and tax margins (EBIT), as well as revenue growth, to get another idea of how well the business is growing. Not all Kinsale Capital Group income this year is income operationsSo keep in mind that the revenue and margin numbers I used might not be the best representation of the underlying business. The good news is Kinsale Capital Group is increasing revenues and EBIT margins have improved 4.5 percentage points to 26% over the past year. It’s great to see, on both counts.
In the graph below, you can see how the business has increased its profit and revenue over time. To see the actual numbers, click on the graph.
Of course, the trick is to find stocks that have their best days in the future, not in the past. You can of course base your opinion on past performance, but you can also check out this interactive chart of Professional Analyst EPS Forecasts for Kinsale Capital Group.
Are Kinsale Capital Group Insiders Aligned With All Shareholders?
I like that business leaders have some skin in the game, so to speak, because it increases the alignment of incentives between the people who run the business and its real owners. So it’s good to see that Kinsale Capital Group insiders have significant capital invested in the stock. Indeed, they have invested a sparkling mountain of wealth, currently valued at US $ 216 million. I would find that kind of skin in the game quite encouraging, if I owned any stock, as it would ensure that the executives of the company would also experience my success, or failure, with the action.
It’s good to see insiders invested in the company, but are the pay levels reasonable? A brief analysis of CEO compensation suggests they are. For companies with a market capitalization between $ 2.0 billion and $ 6.4 billion, like Kinsale Capital Group, the median CEO salary is around $ 5.3 million.
The CEO of Kinsale Capital Group received only US $ 2.2 million in total compensation for the year ending. This is clearly well below par, so at first glance this arrangement seems generous to shareholders and indicates a culture of modest compensation. Although the level of CEO compensation is not a big factor in my view of the company, modest compensation is positive, as it suggests that the board has the interests of shareholders in mind. It can also be a sign of good governance, more generally.
Is Kinsale Capital Group Worth Watching?
Kinsale Capital Group profits took off like any random cryptocurrency, in 2017. The sweetener is that insiders have a mountain of stocks, and CEO pay is quite reasonable. The strong improvement in BPA suggests that companies are buzzing. Big growth can make big winners, so I think Kinsale Capital Group deserves careful consideration. We don’t want to rain too much on the parade, but we also found 1 warning sign for Kinsale Capital Group that you need to be aware of.
You can invest in any business. But if you’d rather focus on stocks that have demonstrated insider buying, here’s a list of companies that have made insider buying in the past three months.
Please note that the insider trading discussed in this article refers to reportable trades in the relevant jurisdiction.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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