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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
In contrast to all that, many investors prefer to focus on companies like Salesforce (NYSE:CRM), which has not only revenues, but also profits. 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 Salesforce
Salesforce’s Earnings Per Share Are Growing
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. Salesforce managed to grow EPS by 5.1% per year, over three years. While that sort of growth rate isn’t anything to write home about, it does show the business is growing.
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. The music to the ears of Salesforce shareholders is that EBIT margins have grown from 9.2% to 18% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Salesforce’s forecast profits?
Are Salesforce Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$240b company like Salesforce. But we do take comfort from the fact that they are investors in the company. Notably, they have an enviable stake in the company, worth US$6.4b. Holders should find this level of insider commitment quite encouraging, since it would ensure that the leaders of the company would also experience their success, or failure, with the stock.
Should You Add Salesforce To Your Watchlist?
One important encouraging feature of Salesforce is that it is growing profits. To add an extra spark to the fire, significant insider ownership in the company is another highlight. These two factors are a huge highlight for the company which should be a strong contender your watchlists. Still, you should learn about the 1 warning sign we’ve spotted with Salesforce.
Although Salesforce 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.
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