Here's Why We Think Qantas Airways (ASX:QAN) Is Well Worth Watching

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Qantas Airways (ASX:QAN). 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 Qantas Airways

Qantas Airways' Improving Profits

Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. So a growing EPS generally brings attention to a company in the eyes of prospective investors. It's an outstanding feat for Qantas Airways to have grown EPS from AU$0.32 to AU$0.98 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. This could point to the business hitting a point of inflection.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It's noted that Qantas Airways' revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Qantas Airways shareholders can take confidence from the fact that EBIT margins are up from 7.8% to 12%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Qantas Airways' future EPS 100% free.

Are Qantas Airways Insiders Aligned With All Shareholders?

Since Qantas Airways has a market capitalisation of AU$9.7b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. As a matter of fact, their holding is valued at AU$23m. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.2% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Our quick analysis into CEO remuneration would seem to indicate they are. For companies with market capitalisations between AU$6.1b and AU$18b, like Qantas Airways, the median CEO pay is around AU$4.2m.

The Qantas Airways CEO received AU$3.7m in compensation for the year ending June 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 good governance, more generally.

Should You Add Qantas Airways To Your Watchlist?

Qantas Airways' earnings have taken off in quite an impressive fashion. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The strong EPS improvement suggests the businesses is humming along. Qantas Airways is certainly doing some things right and is well worth investigating. Even so, be aware that Qantas Airways is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning...

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Australian companies which have demonstrated growth backed by recent insider purchases.

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.