Corpay: A Profitable Company with Growing Earnings
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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 Corpay (NYSE:CPAY), 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.
Earnings Per Share Growth
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Over the last three years, Corpay has grown EPS by 16% per year. That's a good rate of growth, if it can be sustained.
Revenue Growth and EBIT Margins
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. EBIT margins for Corpay remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 5.3% to US$3.8b. That's a real positive.
Insider Ownership and CEO Remuneration
Owing to the size of Corpay, we wouldn't expect insiders to hold a significant proportion of the company. 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. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$756m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.
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. Our analysis has discovered that the median total compensation for the CEOs of companies like Corpay, with market caps over US$8.0b, is about US$13m.
The Corpay CEO received total compensation of just US$2.7m in the year to December 2023. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Is Corpay Worth Adding to Your Watchlist?
One positive for Corpay is that it is growing EPS. That's nice to see. The fact that EPS is growing is a genuine positive for Corpay, but the pleasant picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, you'd argue this one is worthy of the watchlist, at least.
Before you take the next step you should know about the 2 warning signs for Corpay that we have uncovered. There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of companies which have demonstrated growth backed by significant insider holdings.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Conclusion
Corpay's track record of earnings growth, coupled with its modest CEO pay and considerable insider ownership, makes it a compelling investment opportunity. While there are always risks associated with any investment, Corpay's strong fundamentals suggest that it is worth adding to your watchlist. This analysis has been provided for informational purposes only, and does not constitute investment advice.
