For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. 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 PerkinElmer (NYSE:PKI), which has not only revenues, but also profits. 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. 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.
PerkinElmer’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 share price follows earnings per share (EPS) eventually. That makes EPS growth an attractive quality for any company. PerkinElmer managed to grow EPS by 8.2% per year, over three years. That’s a good rate of growth, if it can be sustained.
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. PerkinElmer maintained stable EBIT margins over the last year, all while growing revenue 10% to US$2.8b. That’s a real positive.
While we live in the present moment at all times, there’s no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for PerkinElmer?
Are PerkinElmer Insiders Aligned With All Shareholders?
Since PerkinElmer has a market capitalization of US$9.2b, we wouldn’t expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. With a whopping US$80m worth of shares as a group, insiders have plenty riding on the company’s success. This should keep them focused on creating long term value for shareholders.
Should You Add PerkinElmer To Your Watchlist?
As I already mentioned, PerkinElmer is a growing business, which is what I like to see. If that’s not enough on its own, there is also the rather notable levels of insider ownership. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of PerkinElmer.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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