Should You Be Adding NKT (CPH:NKT) To Your Watchlist Today?

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.

In contrast to all that, many investors prefer to focus on companies like NKT (CPH:NKT), which has not only revenues, but also profits. 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.

View our latest analysis for NKT

NKT's Improving Profits

NKT has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. As a result, we'll zoom in on growth over the last year, instead. Outstandingly, NKT's EPS shot from €1.12 to €2.01, over the last year. It's not often a company can achieve year-on-year growth of 79%.

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. The music to the ears of NKT shareholders is that EBIT margins have grown from 2.9% to 6.4% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

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 NKT?

Are NKT Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

It's worth noting that there was some insider selling of NKT shares last year, worth €696k. But that doesn't beat the large €1.2m share acquisition by Chairman of the Board Jens Peter Olsen. So, on balance, that's positive.

It's reassuring that NKT insiders are buying the stock, but that's not the only reason to think management are fair to shareholders. To be specific, the CEO is paid modestly when compared to company peers of the same size. For companies with market capitalisations between €1.9b and €6.0b, like NKT, the median CEO pay is around €2.4m.

NKT's CEO took home a total compensation package worth €1.2m in the year leading up to December 2023. That is actually below the median for CEO's of similarly 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 NKT To Your Watchlist?

NKT's earnings per share have been soaring, with growth rates sky high. Better yet, we can observe insider buying and the chief executive pay looks reasonable. It could be that NKT is at an inflection point, given the EPS growth. If these have piqued your interest, then this stock surely warrants a spot on your watchlist. However, before you get too excited we've discovered 1 warning sign for NKT that you should be aware of.

The good news is that NKT is not the only growth stock with insider buying. Here's a list of growth-focused companies in DK 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.

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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.