Yahoo Finance Here's Why We Think Brown & Brown (NYSE:BRO) Is Well Worth Watching
For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Brown & Brown (NYSE:BRO). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
See our latest analysis for Brown & Brown
How Fast Is Brown & Brown Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. We can see that in the last three years Brown & Brown grew its EPS by 17% per year. That growth rate is fairly good, assuming the company can keep it up.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. While we note Brown & Brown achieved similar EBIT margins to last year, revenue grew by a solid 20% to US$4.1b. That's progress.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Brown & Brown's future EPS 100% free.
Are Brown & Brown Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Despite US$206k worth of sales, Brown & Brown insiders have overwhelmingly been buying the stock, spending US$728k on purchases in the last twelve months. This overall confidence in the company at current the valuation signals their optimism. We also note that it was the Vice Chairman, James Hays, who made the biggest single acquisition, paying US$268k for shares at about US$53.50 each.
On top of the insider buying, it's good to see that Brown & Brown insiders have a valuable investment in the business. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$3.4b. That equates to 17% of the company, making insiders powerful and aligned with other shareholders. Looking very optimistic for investors.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, J. Brown, is paid less than the median for similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Brown & Brown, with market caps over US$8.0b, is about US$12m.
The Brown & Brown CEO received US$6.7m in compensation for the year ending December 2022. That is actually below the median for CEO's of similarly sized companies. 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 Brown & Brown Worth Keeping An Eye On?
One positive for Brown & Brown is that it is growing EPS. That's nice to see. On top of that, we've seen insiders buying shares even though they already own plenty. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Brown & Brown that you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Brown & Brown, you'll probably love this curated collection of companies in the US that have witnessed growth alongside insider buying in the last three months.
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.
