Share Dilution

Is now the time to put additional storage space (NYSE:EXR) on your watchlist?

For starters, it might seem like a good idea (and an exciting prospect) to buy a company that tells investors a good story, even if it currently lacks a track record of revenue and earnings. But the reality is that when a company loses money every year, for long enough, its investors will usually take their share of those losses. A loss-making company has not yet proven itself with profits, and eventually the inflow of external capital may dry up.

Contrary to all this, many investors prefer to focus on companies like Extra space storage (NYSE:EXR), which not only generates revenue, but also profits. Even if this company is correctly valued by the market, investors would agree that generating consistent earnings will continue to provide Extra Space Storage with the means to add long-term shareholder value.

How quickly does additional space storage increase earnings per share?

If a company can keep increasing its earnings per share (EPS) long enough, its stock price should eventually follow. It therefore makes sense for experienced investors to pay close attention to company EPS when undertaking investment research. Impressively, Extra Space Storage has increased EPS by 23% per year, compounded, over the past three years. If such growth continues in the future, shareholders will have something to smile about.

Revenue growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and tax (EBIT) margin, it’s a great way for a business to maintain a competitive advantage in the market. Our analysis showed that revenues from Extra Space Storage operations has not accounted for all of its revenue in the previous 12 months, so our analysis of its margins may not accurately reflect the underlying business. The music to the ears of Extra Space Storage shareholders is that EBIT margins have increased from 49% to 55% in the last 12 months and revenues are also on an upward trend. These are two great indicators to check for potential growth.

In the table below, you can see how the company has increased its profits and revenue over time. Click on the table to see the exact numbers.

NYSE: EXR Earnings and Revenue History July 24, 2022

Luckily, we have access to analyst predictions for Extra Space Storage coming profits. You can make your own predictions without looking, or you can take a look at what the pros are predicting.

Are Extra Space Storage Insiders Aligned with All Stakeholders?

Given that Extra Space Storage has a market capitalization of US$25 billion, we wouldn’t expect insiders to hold a high percentage of shares. But thanks to their investment in the company, it’s nice to see that there are still incentives to align their actions with those of shareholders. We note that their impressive stake in the company is worth US$367 million. Holders should find this level of insider engagement quite encouraging, as it would ensure that company executives would also experience their success, or failure, with the title.

While it’s always good to see strong belief in the company from insiders through heavy investment, it’s also important for shareholders to consider whether executive compensation policies are reasonable. A brief analysis of CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to Extra Space Storage, with market caps above $8.0 billion, is about $13 million.

The CEO of Extra Space Storage earned total compensation worth US$7.3 million in the year to December 2021. That’s actually below the median for CEOs of size companies similar. CEO compensation isn’t the most important aspect of a company to consider, but when it’s reasonable, it gives a little more confidence that executives are looking after shareholders’ interests. It can also be a sign of good governance more generally.

Is the extra storage space worth looking out for?

You can’t deny that Extra Space Storage has grown its earnings per share at a very impressive rate. It’s attractive. If that’s not enough, also consider that the CEO’s compensation is quite reasonable and insiders are well invested alongside other shareholders. Everyone has their own investment preferences, but that definitely makes Extra Space Storage rather interesting. However, you should inquire about the 1 warning sign we spotted with Extra Space Storage.

The beauty of investing is that you can invest in almost any business you want. But if you’d rather focus on stocks that have been the subject of insider buying, here’s a list of companies with insider buying in the past three months.

Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.

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