I Ran A Stock Scan For Earnings Growth And Innovative Industrial Properties (NYSE:IIPR) Passed With Ease

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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Innovative Industrial Properties (NYSE:IIPR). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Innovative Industrial Properties

Innovative Industrial Properties's Improving Profits

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that Innovative Industrial Properties's EPS went from US$0.18 to US$1.00 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. The good news is that Innovative Industrial Properties is growing revenues, and EBIT margins improved by 27 percentage points to 43%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Innovative Industrial Properties.

Are Innovative Industrial Properties Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We do note that, in the last year, insiders sold -US$464.1k worth of shares. But that's far less than the US$2.8m insiders spend purchasing stock. This makes me even more interested in Innovative Industrial Properties because it suggests that those who understand the company best, are optimistic. It is also worth noting that it was Executive Chairman Alan Gold who made the biggest single purchase, worth US$2.7m, paying US$40.00 per share.

Along with the insider buying, another encouraging sign for Innovative Industrial Properties is that insiders, as a group, have a considerable shareholding. Given insiders own a small fortune of shares, currently valued at US$69m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.