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 completely 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.
In contrast to all that, I prefer to spend time on companies like Quest Diagnostics (NYSE:DGX), which has not only revenues, but also profits.Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation.While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Fast Is Quest Diagnostics Growing? The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually.That makes EPS growth an attractive quality for any company.I, for one, am blown away by the fact that Quest Diagnostics has grown EPS by 41% per year, over the last three years.
That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.
One way to double-check a company’s growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing.
The good news is that Quest Diagnostics is growing revenues, and EBIT margins improved by 5.9 percentage points to 25%, over the last year.That’s great to see, on both counts.
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:DGX Earnings and Revenue History January 9th 2022 The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past.
To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Quest Diagnostics EPS 100% free.
Are Quest Diagnostics Insiders Aligned With All Shareholders? Since Quest Diagnostics has a market capitalization of US$19b, we wouldn’t expect insiders to hold a large percentage of shares.But we do take comfort from the fact that they are investors in the company.With a whopping US$97m worth of shares as a group, insiders have plenty riding on the company’s success.This should keep them focused on creating long term value for shareholders.
Does Quest Diagnostics Deserve A Spot On Your Watchlist? Quest Diagnostics’s earnings have taken off like any random crypto-currency did, back in 2017.
That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest.The hope is, of course, that the strong growth marks a fundamental improvement in the business economics.
So yes, on this short analysis I do think it’s worth considering Quest Diagnostics for a spot on your watchlist.You still need to take note of risks, for example – Quest Diagnostics has 2 warning signs (and 1 which is a bit concerning) we think you should know about.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares.But as a growth investor I always like to check out companies that do have those features.You can access a free list of them here .
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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