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.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Preformed Line Products (NASDAQ:PLPC). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Preformed Line Products with the means to add long-term value to shareholders.
How Quickly Is Preformed Line Products Increasing Earnings Per Share?
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. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. It certainly is nice to see that Preformed Line Products has managed to grow EPS by 25% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note Preformed Line Products achieved similar EBIT margins to last year, revenue grew by a solid 14% to US$569m. That's progress.
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 Preformed Line Products 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.
We haven't seen any insiders selling Preformed Line Products shares, in the last year. Add in the fact that Michael Gibbons, the Independent Director of the company, paid US$5.5k for shares at around US$62.92 each. It seems that at least one insider is prepared to show the market there is potential within Preformed Line Products.
Along with the insider buying, another encouraging sign for Preformed Line Products is that insiders, as a group, have a considerable shareholding. To be specific, they have US$43m worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 11% of the company; visible skin in the game.
Does Preformed Line Products Deserve A Spot On Your Watchlist?
For growth investors, Preformed Line Products' raw rate of earnings growth is a beacon in the night. Moreover, the management and board of the company hold a significant stake in the company, with one party adding to this total. These things considered, this is one stock worth watching. Now, you could try to make up your mind on Preformed Line Products by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Preformed Line Products, you'll probably love this free list of growing companies that insiders are buying.
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.
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