Here's Why We Think EZZ Life Science Holdings (ASX:EZZ) Is Well Worth Watching

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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.

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

Check out our latest analysis for EZZ Life Science Holdings

How Fast Is EZZ Life Science Holdings Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Impressively, EZZ Life Science Holdings has grown EPS by 17% 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 beaming.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. EBIT margins for EZZ Life Science Holdings remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 147% to AU$37m. 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.

Since EZZ Life Science Holdings is no giant, with a market capitalisation of AU$23m, you should definitely check its cash and debt before getting too excited about its prospects.

Are EZZ Life Science Holdings Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

A great takeaway for shareholders is that company insiders within EZZ Life Science Holdings have collectively spent AU$48k acquiring shares in the company. While this isn't much, we also note an absence of sales. Zooming in, we can see that the biggest insider purchase was by Independent Non-Executive Chairperson Glenn Cross for AU$26k worth of shares, at about AU$0.65 per share.

It's commendable to see that insiders have been buying shares in EZZ Life Science Holdings, but there is more evidence of shareholder friendly management. Namely, EZZ Life Science Holdings has a very reasonable level of CEO pay. Our analysis has discovered that the median total compensation for the CEOs of companies like EZZ Life Science Holdings with market caps under AU$307m is about AU$446k.

The CEO of EZZ Life Science Holdings only received AU$173k in total compensation for the year ending June 2023. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add EZZ Life Science Holdings To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into EZZ Life Science Holdings' strong EPS growth. But wait, it gets better. We have seen insider buying and the executive pay seems on the modest side of things. The overriding message from this quick rundown is yes, this stock is worth investigating further. However, before you get too excited we've discovered 1 warning sign for EZZ Life Science Holdings that you should be aware of.

The good news is that EZZ Life Science Holdings is not the only growth stock with insider buying. Here's a list of growth-focused companies in AU 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. 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.