Do Starwood Property Trust’s (NYSE:STWD) Earnings Warrant Your Attention?
Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’
So if you’re like me, you might be more interested in profitable, growing companies, like Starwood Property Trust (NYSE:STWD). While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. 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 Starwood Property Trust
How Fast Is Starwood Property Trust Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That makes EPS growth an attractive quality for any company. Impressively, Starwood Property Trust has grown EPS by 17% per year, compound, in the last three years. As a general rule, we’d say that if a company can keep up that sort of growth, shareholders will be smiling.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Not all of Starwood Property Trust’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. Starwood Property Trust reported flat revenue and EBIT margins over the last year. That’s not bad, but it doesn’t point to ongoing future growth, either.
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.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Starwood Property Trust’s forecast profits?
Are Starwood Property Trust Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
We do note that, in the last year, insiders sold -US$1.8m worth of shares. But that’s far less than the US$5.1m insiders spend purchasing stock. I find this encouraging because it suggests they are optimistic about the Starwood Property Trust’s future. Zooming in, we can see that the biggest insider purchase was by CEO & Non-Independent Executive Chairman of the Board Barry Sternlicht for US$4.9m worth of shares, at about US$22.66 per share.
The good news, alongside the insider buying, for Starwood Property Trust bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$315m. This suggests to me that leadership will be very mindful of shareholders’ interests when making decisions!
Should You Add Starwood Property Trust To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Starwood Property Trust’s strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. So I do think this is one stock worth watching. We should say that we’ve discovered 5 warning signs for Starwood Property Trust (2 can’t be ignored!) that you should be aware of before investing here.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Starwood Property Trust, 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.
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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.