It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making.  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.  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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Liberty Energy (NYSE:LBRT). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Liberty Energy with the means to add long-term value to shareholders.

Liberty Energy's Improving Profits

Liberty Energy has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future.  As a result, we'll zoom in on growth over the last year, instead.    To the delight of shareholders, Liberty Energy's EPS soared from US$2.17 to US$3.35, over the last year.  That's a impressive gain of 55%.  

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.    The music to the ears of Liberty Energy shareholders is that EBIT margins have grown from 12% to 16% in the last 12 months and revenues are on an upwards trend as well.  Ticking those two boxes is a good sign of growth, in our book.  

The chart below shows how the company's bottom and top lines have progressed over time.  For finer detail, click on the image.

NYSE:LBRT Earnings and Revenue History April 18th 2024

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Liberty Energy?

Are Liberty Energy Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests.  So it is good to see that Liberty Energy insiders have a significant amount of capital invested in the stock.     Indeed, they have a considerable amount of wealth invested in it, currently valued at US$124m.   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.  

It's good to see that insiders are invested in the company, but are remuneration levels reasonable?  Well, based on the CEO pay, you'd argue that they are indeed.    The median total compensation for CEOs of companies similar in size to Liberty Energy, with market caps between US$2.0b and US$6.4b, is around US$6.6m.  

The Liberty Energy CEO received US$5.6m in compensation for the year ending December 2023.  That comes in below the average for similar sized companies and seems pretty reasonable.   CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests.  It can also be a sign of good governance, more generally.

Does Liberty Energy Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Liberty Energy's strong EPS growth.   If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess.  The overarching message here is that Liberty Energy has underlying strengths that make it worth a look at.     We should say that we've discovered 2 warning signs for Liberty Energy (1 shouldn't be ignored!) that you should be aware of before investing here.  

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 recent insider purchases.

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.