We Ran A Stock Scan For Earnings Growth And Altium (ASX:ALU) Passed With Ease

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 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Altium (ASX:ALU). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for Altium

Altium's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Over the last three years, Altium has grown EPS by 8.5% per year. That growth rate is fairly good, assuming the company can keep it up.

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. Altium shareholders can take confidence from the fact that EBIT margins are up from 29% to 33%, 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. Click on the chart to see the exact numbers.

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

Are Altium Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Altium insiders have a significant amount of capital invested in the stock. Notably, they have an enviable stake in the company, worth US$567m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to Altium, with market caps between US$2.0b and US$6.4b, is around US$2.3m.

Altium's CEO took home a total compensation package of US$994k in the year prior to June 2022. 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 Altium To Your Watchlist?

As previously touched on, Altium is a growing business, which is encouraging. The growth of EPS may be the eye-catching headline for Altium, but there's more to bring joy for shareholders. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Altium. You might benefit from giving it a glance today.

Although Altium certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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.