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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.
In contrast to all that, many investors prefer to focus on companies like Delta Air Lines (NYSE:DAL), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Delta Air Lines with the means to add long-term value to shareholders.
See our latest analysis for Delta Air Lines
Delta Air Lines’ Improving Profits
Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. So for many budding investors, improving EPS is considered a good sign. It’s an outstanding feat for Delta Air Lines to have grown EPS from US$0.13 to US$5.31 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement. This could point to the business hitting a point of inflection.
It’s often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company’s growth. Our analysis has highlighted that Delta Air Lines’ revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. Delta Air Lines shareholders can take confidence from the fact that EBIT margins are up from 5.8% to 9.5%, and revenue is growing. That’s great to see, on both counts.
The chart below shows how the company’s bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
You don’t drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Delta Air Lines’ future profits.
Are Delta Air Lines Insiders Aligned With All Shareholders?
Since Delta Air Lines has a market capitalisation of US$26b, we wouldn’t expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. With a whopping US$93m worth of shares as a group, insiders have plenty riding on the company’s success. This should keep them focused on creating long term value for shareholders.
While it’s always good to see some strong conviction in the company from insiders through heavy investment, it’s also important for shareholders to ask if management compensation policies are reasonable. Well, based on the CEO pay, you’d argue that they are indeed. Our analysis has discovered that the median total compensation for the CEOs of companies like Delta Air Lines, with market caps over US$8.0b, is about US$12m.
The Delta Air Lines CEO received US$9.6m in compensation for the year ending December 2022. That seems pretty reasonable, especially given it’s below the median for similar sized companies. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Does Delta Air Lines Deserve A Spot On Your Watchlist?
Delta Air Lines’ earnings per share have been soaring, with growth rates sky high. An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management. The drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future. Delta Air Lines certainly ticks a few boxes, so we think it’s probably well worth further consideration. What about risks? Every company has them, and we’ve spotted 1 warning sign for Delta Air Lines you should know about.
While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in the US with promising growth potential and insider confidence.
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.
