Here's Why We Think Wendy's (NASDAQ:WEN) Is Well Worth Watching

Simply Wall St · 09/15/2023 11:10

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Wendy's (NASDAQ:WEN). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for Wendy's

How Fast Is Wendy's 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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Wendy's has managed to grow EPS by 23% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. EBIT margins for Wendy's remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 9.7% to US$2.2b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NasdaqGS:WEN Earnings and Revenue History September 15th 2023

Fortunately, we've got access to analyst forecasts of Wendy's' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Wendy's Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Wendy's followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$354m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Should You Add Wendy's To Your Watchlist?

For growth investors, Wendy's' raw rate of earnings growth is a beacon in the night. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. The growth and insider confidence is looked upon well and so it's worthwhile to investigate further with a view to discern the stock's true value. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Wendy's (1 is a bit unpleasant) you should be aware of.

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.