Do Straumann Holding's (VTX:STMN) Earnings Warrant Your Attention?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Straumann Holding (VTX:STMN). 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 Straumann Holding

Straumann Holding's Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Straumann Holding has managed to grow EPS by 19% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. While we note Straumann Holding achieved similar EBIT margins to last year, revenue grew by a solid 23% to CHF2.2b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Fortunately, we've got access to analyst forecasts of Straumann 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 Straumann Holding Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a CHF17b company like Straumann Holding. But we are reassured by the fact they have invested in the company. We note that their impressive stake in the company is worth CHF5.8b. That equates to 33% of the company, making insiders powerful and aligned with other shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.

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. For companies with market capitalisations over CHF7.9b, like Straumann Holding, the median CEO pay is around CHF6.6m.

Straumann Holding offered total compensation worth CHF3.4m to its CEO in the year to December 2021. That seems pretty reasonable, especially given it's 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Should You Add Straumann Holding To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Straumann Holding's strong EPS growth. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. Everyone has their own preferences when it comes to investing but it definitely makes Straumann Holding look rather interesting indeed. We don't want to rain on the parade too much, but we did also find 1 warning sign for Straumann Holding that you need to be mindful of.

Although Straumann Holding certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, 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.

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

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.