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

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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

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). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

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How Fast Is Neuren Pharmaceuticals Growing Its Earnings Per Share?

In the last three years Neuren Pharmaceuticals' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. To the delight of shareholders, Neuren Pharmaceuticals' EPS soared from AU$0.92 to AU$1.18, over the last year. That's a impressive gain of 29%.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Neuren Pharmaceuticals shareholders can take confidence from the fact that EBIT margins are up from 80% to 84%, and revenue is growing. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

See our latest analysis for Neuren Pharmaceuticals

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

Are Neuren Pharmaceuticals 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Neuren Pharmaceuticals top brass are certainly in sync, not having sold any shares, over the last year. But the bigger deal is that the Independent Non-Executive Director, Joe Basile, paid AU$153k to buy shares at an average price of AU$10.56. Strong buying like that could be a sign of opportunity.

On top of the insider buying, it's good to see that Neuren Pharmaceuticals insiders have a valuable investment in the business. Given insiders own a significant chunk of shares, currently valued at AU$102m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for 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. The median total compensation for CEOs of companies similar in size to Neuren Pharmaceuticals, with market caps between AU$1.5b and AU$4.9b, is around AU$2.5m.

The Neuren Pharmaceuticals CEO received total compensation of just AU$668k in the year to December 2024. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. 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.

Is Neuren Pharmaceuticals Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Neuren Pharmaceuticals' strong EPS growth. Moreover, the management and board of the company hold a significant stake in the company, with one party adding to this total. So it's fair to say that this stock may well deserve a spot on your watchlist. Before you take the next step you should know about the 2 warning signs for Neuren Pharmaceuticals that we have uncovered.

The good news is that Neuren Pharmaceuticals is not the only stock with insider buying. Here's a list of small cap, undervalued 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.