Here's Why We Think Neuren Pharmaceuticals (ASX:NEU) Is Well Worth Watching

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Neuren Pharmaceuticals (ASX:NEU). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Neuren Pharmaceuticals with the means to add long-term value to shareholders.

View our latest analysis for Neuren Pharmaceuticals

How Fast Is Neuren Pharmaceuticals Growing Its Earnings Per Share?

Over the last three years, Neuren Pharmaceuticals has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. Impressively, Neuren Pharmaceuticals' EPS catapulted from AU$0.44 to AU$0.92, over the last year. It's not often a company can achieve year-on-year growth of 112%. That could be a sign that the business has reached a true inflection point.

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 music to the ears of Neuren Pharmaceuticals shareholders is that EBIT margins have grown from 70% to 80% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

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.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Neuren Pharmaceuticals?

Are Neuren Pharmaceuticals Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. 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.

Belief in the company remains high for insiders as there hasn't been a single share sold by the management or company board members. But more importantly, Independent Non-Executive Director Joe Basile spent AU$198k acquiring shares, doing so at an average price of AU$17.38. It seems at least one insider has seen potential in the company's future - and they're willing to put money on the line.

The good news, alongside the insider buying, for Neuren Pharmaceuticals bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold AU$47m worth of its stock. This considerable investment should help drive long-term value in the business. Even though that's only about 3.3% 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. The cherry on top is that the CEO, Jon Pilcher is paid comparatively modestly to CEOs at similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Neuren Pharmaceuticals with market caps between AU$645m and AU$2.6b is about AU$1.7m.

Neuren Pharmaceuticals' CEO took home a total compensation package worth AU$1.4m in the year leading up to December 2023. That is actually below the median for CEO's of similarly sized companies. 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. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add Neuren Pharmaceuticals To Your Watchlist?

Neuren Pharmaceuticals' earnings per share growth have been climbing higher at an appreciable rate. The icing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Neuren Pharmaceuticals belongs near the top of your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Neuren Pharmaceuticals , and understanding this should be part of your investment process.

Keen growth investors love to see insider activity. Thankfully, Neuren Pharmaceuticals isn't the only one. You can see a a curated list of Australian companies which have exhibited consistent growth accompanied by high insider ownership.

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.