Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like easyJet (LON:EZJ). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
Over the last three years, easyJet has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. easyJet's EPS skyrocketed from UK£0.43 to UK£0.60, in just one year; a result that's bound to bring a smile to shareholders. That's a fantastic gain of 40%.
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. It's noted that easyJet's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. easyJet maintained stable EBIT margins over the last year, all while growing revenue 14% to UK£9.3b. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Are easyJet Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
With strong conviction, easyJet insiders have stood united by refusing to sell shares over the last year. But the real excitement comes from the UK£41k that Independent Non-Executive Director David Robbie spent buying shares (at an average price of about UK£5.50). Purchases like this clue us in to the to the faith management has in the business' future.
On top of the insider buying, it's good to see that easyJet insiders have a valuable investment in the business. Indeed, they have a considerable amount of wealth invested in it, currently valued at UK£608m. This totals to 15% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. Very encouraging.
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. The cherry on top is that the CEO, Alistair Jarvis is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalisations between UK£3.0b and UK£9.0b, like easyJet, the median CEO pay is around UK£2.8m.
The easyJet CEO received UK£1.8m in compensation for the year ending September 2024. That comes in below the average for similar sized companies and seems pretty reasonable. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Does easyJet Deserve A Spot On Your Watchlist?
You can't deny that easyJet has grown its earnings per share at a very impressive rate. That's attractive. Better still, insiders own a large chunk of the company and one has even been buying more shares. Astute investors will want to keep this stock on watch. You still need to take note of risks, for example - easyJet has 1 warning sign we think you should be aware of.
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.
