One of the most important things I consider when evaluating a company is the level of insider ownership. It's not a magic pill, to be sure. But if the CEO and other top managers own a lot of stock, then it just makes sense that their interests are aligned with other shareholders.
In other words, it's like you and me having folks working for us ... on the inside.
Of course, it helps if the business has some other things going for it as well. Anytime I'm looking for new investment ideas, I run the following screen. First, I want insider ownership of at least 10%. In addition, in looking for vibrant businesses with bright futures, I demand revenue and earnings growth of 15% or better. I also want companies that have demonstrated efficiency, so I require a minimum net profit margin of 10%. Finally, a return on equity of 15% or better shows me that management is proficient when it comes to allocating capital.
However, that screen returned 74 companies this month -- too many to list in one article. So let's tighten things up a bit more by rolling some 20s: 20% ownership, earnings and sales growth, net margin, and ROE. Now, when we look at companies with a minimum market cap of $1 billion, we're down to just 15:
|
Company Name |
Insider Ownership |
Sales Growth* |
EPS Growth* |
Net Margin* |
ROE* |
|---|---|---|---|---|---|
|
Baidu |
23% |
44% |
64% |
36% |
42% |
|
Banco Macro S.A. |
39% |
36% |
36% |
26% |
26% |
|
China Shineway Pharmaceutical |
58% |
28% |
93% |
47% |
32% |
|
Credit Acceptance |
68% |
49% |
86% |
41% |
33% |
|
First Solar |
36% |
51% |
33% |
29% |
29% |
|
Fortinet |
27% |
24% |
1091% |
23% |
83% |
|
Fufeng Group |
47% |
29% |
215% |
20% |
45% |
|
Hang Lung Group |
30% |
142% |
159% |
89% |
27% |
|
Huabao International Holdings |
44% |
28% |
20% |
57% |
43% |
|
MRV Engenharia e Participações S.A. |
35% |
63% |
42% |
21% |
20% |
|
Nelnet |
57% |
32% |
36% |
26% |
22% |
|
Peak Sport Products |
61% |
52% |
44% |
20% |
33% |
|
Perfect World |
25% |
50% |
74% |
48% |
51% |
|
SolarWinds |
36% |
31% |
45% |
26% |
86% |
|
Sonova Holding AG |
28% |
20% |
24% |
24% |
29% |
*Trailing 12 months. Data provided by Capital IQ, a division of Standard & Poor's.
These are among the companies I'll be looking at for my next new investments. I have a long way to go in digging into the business models and valuation, but I'm confident I'm starting with promising companies led by managers with a lot of their wealth riding on their stock's performance.
