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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Life Storage (NYSE:LSI). While profit is not necessarily a social good, it’s easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
View our latest analysis for Life Storage
How Fast Is Life Storage Growing?
If you believe that markets are even vaguely efficient, then over the long term you’d expect a company’s share price to follow its earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. I, for one, am blown away by the fact that Life Storage has grown EPS by 41% per year, over the last three years. While that sort of growth rate isn’t sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company’s growth. Not all of Life Storage’s revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I’ve used might not be the best representation of the underlying business. Life Storage maintained stable EBIT margins over the last year, all while growing revenue 4.4% to US$579m. That’s progress.
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:LSI Income Statement April 29th 2020
While we live in the present moment at all times, there’s no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Life Storage?
Are Life Storage Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Despite -US$530.0k worth of sales, Life Storage insiders have overwhelmingly been buying the stock, spending US$1.2m on purchases in the last twelve months. You could argue that level of buying implies genuine confidence in the business. Zooming in, we can see that the biggest insider purchase was by Independent Director Edward Pettinella for US$742k worth of shares, at about US$100 per share.
Along with the insider buying, another encouraging sign for Life Storage is that insiders, as a group, have a considerable shareholding. To be specific, they have US$35m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.8% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That’s because on our analysis the CEO, Joe Saffire, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like Life Storage with market caps between US$2.0b and US$6.4b is about US$5.7m.
Life Storage offered total compensation worth US$3.5m to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. While the level of CEO compensation isn’t a huge factor in my view of the company, 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.
Should You Add Life Storage To Your Watchlist?
Life Storage’s earnings per share have taken off like a rocket aimed right at the moon. What’s more insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Life Storage deserves timely attention. You still need to take note of risks, for example – Life Storage has 4 warning signs (and 2 which are a bit unpleasant) we think you should know about.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Life Storage, you’ll probably love this free list of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
If you spot an error that warrants correction, please contact the editor at [email protected]. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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