Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in . found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Macquarie Telecom Group (ASX:MAQ). Now, I’m not saying that the stock is necessarily undervalued today; but I can’t shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Macquarie Telecom Group’s Improving Profits
In the last three years Macquarie Telecom Group’s earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn’t tell us much. As a result, I’ll zoom in on growth over the last year, instead. Like a wedge-tailed eagle on the wind, Macquarie Telecom Group’s EPS soared from AU$0.77 to AU$1.01, in just one year. That’s a impressive gain of 32%.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While we note Macquarie Telecom Group’s EBIT margins were flat over the last year, revenue grew by a solid 5.1% to AU$240m. That’s a real positive.
The chart below shows how the company’s bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
While it’s always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Macquarie Telecom Group’s balance sheet strength, before getting too excited.
Are Macquarie Telecom Group Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Macquarie Telecom Group insiders own a significant number of shares certainly appeals to me. In fact, hey own 62% of the company, so they will share in the same delights and challenged experienced by the ordinary shareholders. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. That means insiders have AU$263m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!
It’s good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I’d say they are indeed. I discovered that the median total compensation for the CEOs of companies like Macquarie Telecom Group with market caps between AU$278m and AU$1.1b is about AU$1.0m.
Macquarie Telecom Group offered total compensation worth AU$872k to its CEO in the year to June 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn’t a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.
Should You Add Macquarie Telecom Group To Your Watchlist?
For growth investors like me, Macquarie Telecom Group’s raw rate of earnings growth is a beacon in the night. If that’s not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. This may only be a fast rundown, but the takeaway for me is that Macquarie Telecom Group is worth keeping an eye on. Of course, just because Macquarie Telecom Group is growing does not mean it is undervalued. If you’re wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Although Macquarie Telecom Group certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, 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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