Is Now The Time To Put Toromont Industries (TSE:TIH) On Your Watchlist?

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 Toromont Industries (TSE:TIH). 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 Toromont Industries

How Quickly Is Toromont Industries Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shareholders will be happy to know that Toromont Industries' EPS has grown 25% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

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. Toromont Industries maintained stable EBIT margins over the last year, all while growing revenue 6.4% to CA$4.6b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

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 Toromont Industries' future EPS 100% free.

Are Toromont Industries Insiders Aligned With All Shareholders?

Owing to the size of Toromont Industries, we wouldn't expect insiders to hold a significant proportion of the company. But we are reassured by the fact they have invested in the company. To be specific, they have CA$18m worth of shares. That's a lot of money, and no small incentive to work hard. Despite being just 0.2% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

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. A brief analysis of the CEO compensation suggests they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Toromont Industries with market caps between CA$5.5b and CA$16b is about CA$5.9m.

Toromont Industries' CEO took home a total compensation package of CA$2.1m in the year prior to December 2023. First impressions seem to indicate a compensation policy that is favourable to shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Does Toromont Industries Deserve A Spot On Your Watchlist?

You can't deny that Toromont Industries has grown its earnings per share at a very impressive rate. That's attractive. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. The overarching message here is that Toromont Industries has underlying strengths that make it worth a look at. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Toromont Industries.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in CA with promising growth potential and insider confidence.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com