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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In contrast to all that, I prefer to spend time on companies like Electromed (NYSEMKT:ELMD), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
View our latest analysis for Electromed
How Quickly Is Electromed Increasing Earnings Per Share?
As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Electromed has grown EPS by 22% per year, compound, in the last three years. As a general rule, we’d say that if a company can keep up that sort of growth, shareholders will be smiling.
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. Electromed shareholders can take confidence from the fact that EBIT margins are up from 9.5% to 13%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Since Electromed is no giant, with a market capitalization of US$89m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Electromed Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I’m encouraged by the fact that insiders own Electromed shares worth a considerable sum. To be specific, they have US$20m worth of shares. That’s a lot of money, and no small incentive to work hard. That amounts to 22% of the company, demonstrating a degree of high-level alignment with shareholders.
Is Electromed Worth Keeping An Eye On?
You can’t deny that Electromed has grown its earnings per share at a very impressive rate. That’s attractive. Further, the high level of insider ownership impresses me, and suggests that I’m not the only one who appreciates the EPS growth. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. You should always think about risks though. Case in point, we’ve spotted 4 warning signs for Electromed you should be aware of, and 1 of them is concerning.
You can invest in 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.
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This article by Simply Wall St is general in nature. 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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