Investors are often guided by the idea of discovering “the next big thing,” even if that means buying “story stocks” with no sales or even profits. But as Peter Lynch said One Up on Wall Street“Broad gambles are almost never worth it.” A loss-making company still has to prove itself through profits, and at some point the inflow of external capital could dry up.
Although we are in the era of blue sky investing in technology stocks, many investors still follow a more traditional strategy; Buying shares in profitable companies like Live Nation Entertainment (NYSE:LYV). That’s not to say that the company offers the best investment opportunity ever, but profitability is a key component to business success.
Check out our latest analysis for Live Nation Entertainment
How fast is Live Nation Entertainment growing its earnings per share?
Live Nation Entertainment has seen a huge increase in earnings per share over the past three years. So much so that this three-year growth rate wouldn’t be a fair assessment of the company’s future. Therefore, it makes sense to focus on more recent growth rates instead. Notably, Live Nation Entertainment’s earnings per share increased from $0.85 to $1.53 over the last year. Annual growth of 79% is certainly an impressive sight. The best scenario? That the company has reached a real turning point.
Careful consideration of revenue growth and EBIT (earnings before interest and taxes) margins can help provide an assessment of the sustainability of recent profit growth. Live Nation Entertainment kept its EBIT margins stable last year while increasing revenue by 40% to $21 billion. That’s really positive.
You can take a look at the company’s revenue and profit growth trend in the chart below. For more detailed details click on the image.
As in life, when it comes to investing, the future is more important than the past. So don’t look at this free interactive visualization from Live Nation Entertainment forecast Profits?
Are Live Nation Entertainment insiders aligned with all shareholders?
Investors are always looking for a vote of confidence in the companies they own, and insider buying is one of the key indicators of optimism in the market. That’s because insider buying often indicates that those closest to the company have confidence that the stock price will perform well. Of course, we can never be sure what insiders think, we can only judge their actions.
While there was some insider selling, that pales in comparison to the $1.0 million that independent director James Iovine spent buying shares. The average price was $73.28 per share. It’s not often you see purchases like this, and that’s why it should be on the radar of everyone who follows Live Nation Entertainment.
In addition to the insider buying, another encouraging sign for Live Nation Entertainment is that insiders as a group have significant share ownership. Notably, they hold an enviable stake in the company worth $414 million. This suggests that management will be very mindful of shareholders’ interests when making decisions!
Does Live Nation Entertainment deserve a spot on your watchlist?
Live Nation Entertainment’s earnings per share growth increased significantly. To sweeten the deal, insiders have a significant stake in the game, and one of them is acquiring even more. This brief overview suggests that the business may be of good quality and is also at a turning point, so Live Nation Entertainment may deserve timely attention. One of Buffett’s considerations when discussing companies is whether they are capital-light or capital-intensive. Generally, a company with a high return on equity has little capital and can therefore more easily finance its growth. So you might want to take a look at this chart comparing Live Nation Entertainment’s ROE to industry peers (and the market as a whole).
There are many other companies where insiders buy shares. So if you like the sound of Live Nation Entertainment, you’ll probably love this free List of growing companies that insiders are buying.
Please note that the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.