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 currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
In contrast to all that, many investors prefer to focus on companies like Reinsurance Group of America (NYSE:RGA), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
Reinsurance Group of America's Improving Profits
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's easy to see why many investors focus in on EPS growth. Reinsurance Group of America's EPS skyrocketed from US$10.04 to US$13.03, in just one year; a result that's bound to bring a smile to shareholders. That's a commendable gain of 30%.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Reinsurance Group of America maintained stable EBIT margins over the last year, all while growing revenue 27% to US$21b. That's encouraging news for the company!
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Reinsurance Group of America's future EPS 100% free.
Are Reinsurance Group of America Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$14b company like Reinsurance Group of America. But we do take comfort from the fact that they are investors in the company. Given insiders own a significant chunk of shares, currently valued at US$62m, they have plenty of motivation to push the business to succeed. That's certainly enough to let shareholders know that management will be very focussed on long term growth.
While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to Reinsurance Group of America, with market caps over US$8.0b, is around US$13m.
Reinsurance Group of America's CEO took home a total compensation package worth US$6.5m in the year leading up to December 2023. That is actually below the median for CEO's of similarly sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.
Does Reinsurance Group of America Deserve A Spot On Your Watchlist?
For growth investors, Reinsurance Group of America's raw rate of earnings growth is a beacon in the night. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. This may only be a fast rundown, but the key takeaway is that Reinsurance Group of America is worth keeping an eye on. Of course, just because Reinsurance Group of America is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Although Reinsurance Group of America certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of companies that not only boast of strong growth but have strong insider backing.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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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 account of 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.
