The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies with no revenue, no profit and a history of failure can successfully find investors. Unfortunately, these high-risk investments are often unlikely to ever return, and many investors pay a price to learn their lesson. Loss-making companies can act as a sponge for capital – so investors should be careful not to throw good money after bad.
Despite being in the age of astronomical investing in tech stocks, many investors still adopt a more traditional strategy; buy shares in profitable companies like Magnolia oil and gas (NYSE:MGY). While that doesn’t necessarily mean it’s undervalued, the company’s profitability is enough to warrant some appreciation, especially if it’s growing.
See our latest analysis for Magnolia Oil & Gas
How fast is Magnolia Oil & Gas growing earnings per share?
In business, profits are a key measure of success; and stock prices tend to reflect earnings per share (EPS) performance. This is why EPS growth is viewed so favorably. It’s a tremendous feat for Magnolia Oil & Gas to have grown EPS from $1.09 to $3.60 in just one year. While sustaining growth at this level is difficult, it bodes well for the company’s future prospects. This could indicate that the business is reaching an inflection point.
Revenue growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and tax (EBIT) margin, it’s a great way for a business to maintain a competitive edge in the market. Magnolia Oil & Gas shareholders can take comfort in the fact that EBIT margins have increased from 39% to 63% and revenues are increasing. It’s great to see, on both counts.
You can check the company’s revenue and profit growth trend in the table below. Click on the table to see the exact numbers.
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 professional analyst EPS forecast chart for Magnolia Oil & Gas.
Are Magnolia Oil and Gas Insiders Aligned with All Shareholders?
This should give investors a sense of security in owning stock in a company if insiders also own stock, creating a close alignment of their interests. So it’s good to see that Magnolia Oil & Gas insiders have significant capital invested in the stock. Notably, they hold an enviable stake in the company, worth US$189 million. Holders should find this level of insider engagement quite encouraging, as it would ensure that company executives would also experience their success, or failure, with the title.
It means a lot to see insiders invested in the company, but shareholders may wonder whether compensation policies are in their best interests. A brief analysis of CEO compensation suggests they are. For companies with a market capitalization between $2.0 billion and $6.4 billion, such as Magnolia Oil & Gas, the median CEO salary is around $6.9 million.
The CEO of Magnolia Oil & Gas only received $3.3 million in total compensation for the year ending December 2021. That’s clearly well below average, so at first glance this arrangement seems generous to shareholders and indicates a modest compensation culture. CEO compensation isn’t the most important aspect of a company to consider, but when it’s reasonable, it gives a little more confidence that executives are looking after shareholders’ interests. Generally, it can be argued that reasonable compensation levels attest to good decision-making.
Should you add Magnolia Oil & Gas to your watch list?
Magnolia Oil & Gas’ earnings per share soared, with skyrocketing growth rates. An added bonus for those interested is that the management owns a bunch of stock and the CEO compensation is quite reasonable, illustrating good cash management. The strong improvement in EPS suggests businesses are doing well. Big growth can make big winners, so the writing on the wall tells us that Magnolia Oil & Gas deserves careful consideration. Remember that there may still be risks. For example, we have identified 2 warning signs for Magnolia Oil & Gas (1 is concerning) that you should be aware of.
While Magnolia Oil & Gas certainly looks good, it could attract more investors if insiders buy shares. If you like seeing insiders buy, then this free list of growing companies that insiders are buying might be exactly what you are looking for.
Please note that insider trading discussed in this article refers to reportable trading 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 only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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