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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like PWR Holdings (ASX:PWH). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
PWR Holdings' 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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, PWR Holdings has grown EPS by 13% per year. That growth rate is fairly good, assuming the company can keep it up.
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. PWR Holdings shareholders can take confidence from the fact that EBIT margins are up from 23% to 27%, and revenue is growing. That's great to see, on both counts.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
Fortunately, we've got access to analyst forecasts of PWR Holdings' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are PWR Holdings Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
A great takeaway for shareholders is that company insiders within PWR Holdings have collectively spent AU$31k acquiring shares in the company. While this investment may be modest, it is great considering the lack of insider selling.
On top of the insider buying, it's good to see that PWR Holdings insiders have a valuable investment in the business. We note that their impressive stake in the company is worth AU$193m. That equates to 24% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Kees Weel, is paid less than the median for similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like PWR Holdings with market caps between AU$290m and AU$1.2b is about AU$1.2m.
PWR Holdings' CEO took home a total compensation package of AU$547k in the year prior to June 2021. First impressions seem to indicate a compensation policy that is favourable to shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Should You Add PWR Holdings To Your Watchlist?
One positive for PWR Holdings is that it is growing EPS. That's nice to see. In addition, insiders have been busy adding to their sizeable holdings in the company. That makes the company a prime candidate for your watchlist - and arguably a research priority. Now, you could try to make up your mind on PWR Holdings by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
Keen growth investors love to see insider buying. Thankfully, PWR Holdings isn't the only one. You can see a 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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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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