With EPS Growth And More, Technology One (ASX:TNE) Makes An Interesting Case

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and 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 Technology One (ASX:TNE). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for Technology One

How Quickly Is Technology One Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Technology One managed to grow EPS by 14% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.

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. While we note Technology One achieved similar EBIT margins to last year, revenue grew by a solid 18% to AU$368m. 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.

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

Are Technology One 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. Technology One followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. We note that their impressive stake in the company is worth AU$623m. That equates to 13% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.

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. For companies with market capitalisations between AU$3.0b and AU$9.5b, like Technology One, the median CEO pay is around AU$3.6m.

Technology One's CEO took home a total compensation package worth AU$2.3m in the year leading up to September 2022. That is actually below the median for CEO's of similarly sized companies. 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. It can also be a sign of good governance, more generally.

Should You Add Technology One To Your Watchlist?

One important encouraging feature of Technology One is that it is growing profits. The fact that EPS is growing is a genuine positive for Technology One, but the pleasant picture gets better than that. With company insiders aligning themselves considerably with the company's success and modest CEO compensation, there's no arguments that this is a stock worth looking into. You still need to take note of risks, for example - Technology One has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

Although Technology One 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.