The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Texas Pacific Land (NYSE:TPL). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
We've discovered 2 warning signs about Texas Pacific Land. View them for free.Texas Pacific Land's Earnings Per Share Are Growing
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Shareholders will be happy to know that Texas Pacific Land's EPS has grown 19% each year, compound, over three years. So it's not surprising to see the company trades on a very high multiple of (past) earnings.
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. Texas Pacific Land maintained stable EBIT margins over the last year, all while growing revenue 12% to US$706m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
View our latest analysis for Texas Pacific Land
While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Texas Pacific Land's balance sheet strength, before getting too excited.
Are Texas Pacific Land Insiders Aligned With All Shareholders?
Since Texas Pacific Land has a market capitalisation of US$29b, we wouldn't expect insiders to hold a large percentage of shares. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. To be specific, they have US$49m worth of shares. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 0.2%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Our quick analysis into CEO remuneration would seem to indicate they are. For companies with market capitalisations over US$8.0b, like Texas Pacific Land, the median CEO pay is around US$14m.
The Texas Pacific Land CEO received US$7.4m in compensation for the year ending December 2024. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.
Does Texas Pacific Land Deserve A Spot On Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into Texas Pacific Land's strong EPS growth. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. The overarching message here is that Texas Pacific Land has underlying strengths that make it worth a look at. We don't want to rain on the parade too much, but we did also find 2 warning signs for Texas Pacific Land (1 is concerning!) that you need to be mindful of.
Although Texas Pacific Land 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.