If EPS Growth Is Important To You, Winpak (TSE:WPK) Presents An Opportunity

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. 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.

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 Winpak (TSE:WPK). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Winpak with the means to add long-term value to shareholders.

See our latest analysis for Winpak

Winpak's Earnings Per Share Are Growing

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. That makes EPS growth an attractive quality for any company. Winpak managed to grow EPS by 11% per year, over three years. 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. It seems Winpak is pretty stable, since revenue and EBIT margins are pretty flat year on year. That's not a major concern but nor does it point to the long term growth we like to see.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Winpak?

Are Winpak Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

In the last year insider at Winpak were both selling and buying shares; but happily, as a group they spent US$137k more on stock, than they netted from selling it. On balance, that's a good sign. It is also worth noting that it was Director Martti Aarnio-Wihuri who made the biggest single purchase, worth CA$80k, paying CA$40.07 per share.

It's commendable to see that insiders have been buying shares in Winpak, but there is more evidence of shareholder friendly management. Namely, Winpak has a very reasonable level of CEO pay. Our analysis has discovered that the median total compensation for the CEOs of companies like Winpak with market caps between US$1.0b and US$3.2b is about US$2.2m.

The Winpak CEO received US$1.2m in compensation for the year ending December 2022. 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 Winpak To Your Watchlist?

One important encouraging feature of Winpak is that it is growing profits. And that's not all. We've also seen insiders buying stock, and noted modest executive pay. The sum of all that, points to a quality business, and a genuine prospect for further research. Of course, just because Winpak 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.

Keen growth investors love to see insider buying. Thankfully, Winpak isn't the only one. You can see a a curated list of Canadian companies which have exhibited consistent growth accompanied by recent insider buying.

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.