The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; like buying shares in profitable companies Exxon Mobil ((NYSE:XOM). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
View our latest analysis for Exxon Mobil
How Fast Is Exxon Mobil Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so you’d expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. To the delight of shareholders, Exxon Mobil has achieved impressive annual EPS growth of 60%, compound, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it’s a great way for a company to maintain a competitive advantage in the market. Exxon Mobil shareholders can take confidence from the fact that EBIT margins are up from 9.6% to 18%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. For finer details, click on the image.
Fortunately, we’ve got access to analyst forecasts of Exxon Mobil’s future profits You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Exxon Mobil Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$468b company like Exxon Mobil. But thanks to their investment in the company, it’s pleasing to see that there are still incentives to align their actions with the shareholders. Notably, they have an enviable stake in the company, worth US$802m. While that is a lot of skin in the game, we note that this holding only totals to 0.2% of the business, which is a result of the company being so large. This still shows shareholders there is a degree of alignment between management and themselves.
Should You Add Exxon Mobil To Your Watchlist?
Exxon Mobil’s earnings per share have been soaring, with sky high growth rates. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. At times fast EPS growth is a sign the business has reached an inflection point, so there’s a potential opportunity to be had here. So based on this quick analysis, we do think it’s worth considering Exxon Mobil for a spot on your watchlist. You should always think about risks though. Case in point, we’ve spotted 2 warning signs for Exxon Mobil you should be aware of, and 1 of them is concerning.
There’s always the possibility of doing well buying stocks that not even growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.
Please note that the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
What are the risks and opportunities for Exxon Mobil?
Exxon Mobil Corporation explores for and produces crude oil and natural gas in the United States and internationally.
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Rewards
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Price-To-Earnings ratio (8.4x) is below the US market (15.3x)
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Earnings have grown 9.5% per year over the past 5 years
Risks
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Earnings are forecast to decline by an average of 16.7% per year for the next 3 years
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Significant insider selling over the past 3 months
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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 into account 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.