Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Texas Pacific Land (NYSE:TPL). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for Texas Pacific Land

Texas Pacific Land's Earnings Per Share Are 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. It certainly is nice to see that Texas Pacific Land has managed to grow EPS by 24% per year over three years. So it's not surprising to see the company trades on a very high multiple of (past) earnings.

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. EBIT margins for Texas Pacific Land remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 11% to US$687m. That's encouraging news for the company!

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Texas Pacific Land Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Despite some Texas Pacific Land insiders disposing of some shares, we note that there was US$103k more in buying interest among those who know the company best On balance, that's a good sign. Zooming in, we can see that the biggest insider purchase was by Independent Director Robert Roosa for US$492k worth of shares, at about US$550 per share.

On top of the insider buying, it's good to see that Texas Pacific Land insiders have a valuable investment in the business. To be specific, they have US$43m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.1% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. The cherry on top is that the CEO, Tyler Glover is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalisations over US$8.0b, like Texas Pacific Land, the median CEO pay is around US$12m.

The CEO of Texas Pacific Land only received US$6.1m in total compensation for the year ending December 2023. First impressions seem to indicate a compensation policy that is favourable to shareholders. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Should You Add Texas Pacific Land To Your Watchlist?

You can't deny that Texas Pacific Land has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant stake in the company and have been buying more shares. Astute investors will want to keep this stock on watch. However, before you get too excited we've discovered 1 warning sign for Texas Pacific Land 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 Texas Pacific Land, you'll probably love this curated collection of companies in the US that have an attractive valuation 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.