Here's Why We Think Sonova Holding (VTX:SOON) 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 completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. 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 Sonova Holding (VTX:SOON). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

View our latest analysis for Sonova Holding

Sonova Holding's Earnings Per Share Are Growing.

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. Sonova Holding managed to grow EPS by 15% per year, over three years. That's a pretty good rate, if the company can sustain it.

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 Sonova Holding may have maintained EBIT margins over the last year, revenue has fallen. And that does make me a little more cautious of the stock.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

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

Are Sonova Holding Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a CHF23b company like Sonova Holding. But we do take comfort from the fact that they are investors in the company. Notably, they have an enormous stake in the company, worth CHF3.8b. That equates to 17% of the company, making insiders powerful and aligned with other shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.

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. For companies with market capitalizations over CHF7.4b, like Sonova Holding, the median CEO pay is around CHF5.0m.

The Sonova Holding CEO received CHF3.3m in compensation for the year ending . That seems pretty reasonable, especially given its below the median for similar 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 a culture of integrity, in a broader sense.

Should You Add Sonova Holding To Your Watchlist?

One positive for Sonova Holding is that it is growing EPS. That's nice to see. The fact that EPS is growing is a genuine positive for Sonova Holding, but the pretty picture gets better than that. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. You still need to take note of risks, for example - Sonova Holding has 2 warning signs we think you should be aware of.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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.

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