Here's Why We Think New Hope (ASX:NHC) Might Deserve Your Attention Today

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 New Hope (ASX:NHC). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for New Hope

How Fast Is New Hope Growing Its Earnings Per Share?

New Hope has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. New Hope has grown its trailing twelve month EPS from AU$1.18 to AU$1.29, in the last year. That's a modest gain of 8.9%.

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. The good news is that New Hope is growing revenues, and EBIT margins improved by 3.4 percentage points to 59%, over the last year. Ticking those two boxes is a good sign of growth, in our book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

Fortunately, we've got access to analyst forecasts of New Hope's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are New Hope 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

It's pleasing to note that insiders spent AU$7.0m buying New Hope shares, over the last year, without reporting any share sales whatsoever. Buying like that is a fantastic look for the company and should rouse the market in anticipation for the future. It is also worth noting that it was Non-Executive Chairman Robert Millner who made the biggest single purchase, worth AU$1.7m, paying AU$5.62 per share.

Along with the insider buying, another encouraging sign for New Hope is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at AU$67m. This considerable investment should help drive long-term value in the business. Even though that's only about 1.5% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because New Hope's CEO, Rob Bishop, is paid at a relatively modest level when compared to other CEOs for companies of this size. The median total compensation for CEOs of companies similar in size to New Hope, with market caps between AU$3.0b and AU$9.7b, is around AU$3.4m.

New Hope's CEO took home a total compensation package worth AU$2.5m in the year leading up to July 2023. That comes in below the average for similar sized companies and seems pretty reasonable. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does New Hope Deserve A Spot On Your Watchlist?

One positive for New Hope 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 should do plenty in prompting budding investors to undertake a bit more research - or even adding the company to their watchlists. You still need to take note of risks, for example - New Hope has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

Keen growth investors love to see insider buying. Thankfully, New Hope 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.