Like a puppy chasing its tail, some new investors often chase ‘the next big thing’, even if that means buying ‘story stocks’ without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Cigna (NYSE:CI). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Fast Is Cigna Growing?
As one of my mentors once told me, share price follows earnings per share (EPS). It’s no surprise, then, that I like to invest in companies with EPS growth. Impressively, Cigna has grown EPS by 32% 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.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Not all of Cigna’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. While we note Cigna’s EBIT margins were flat over the last year, revenue grew by a solid 5.8% to US$163b. That’s progress.
The chart below shows how the company’s bottom and top lines have progressed over time. For finer detail, click on the image.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Cigna.
Are Cigna Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That’s because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
Cigna top brass are certainly in sync, not having sold any shares, over the last year. But the bigger deal is that the President & COO of Evernorth, Eric Palmer, paid US$169k to buy shares at an average price of US$169.
The good news, alongside the insider buying, for Cigna bulls is that insiders (collectively) have a meaningful investment in the stock. Notably, they have an enormous stake in the company, worth US$277m. This suggests to me that leadership will be very mindful of shareholders’ interests when making decisions!
Should You Add Cigna To Your Watchlist?
For growth investors like me, Cigna’s raw rate of earnings growth is a beacon in the night. Better still, insiders own a large chunk of the company and one has even been buying more shares. So it’s fair to say I think this stock may well deserve a spot on your watchlist. You should always think about risks though. Case in point, we’ve spotted 2 warning signs for Cigna you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Cigna, 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. 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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