Do Solar's (CPH:SOLAR B) Earnings Warrant Your Attention?

By
Simply Wall St
Published
April 22, 2022
CPSE:SOLAR B
Source: Shutterstock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Solar (CPH:SOLAR B). 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 Solar

Solar's Earnings Per Share Are Growing.

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. Who among us would not applaud Solar's stratospheric annual EPS growth of 43%, compound, over the last three years? That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.

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. While we note Solar's EBIT margins were flat over the last year, revenue grew by a solid 7.8% to kr.12b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

earnings-and-revenue-history
CPSE:SOLAR B Earnings and Revenue History April 22nd 2022

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Solar's forecast profits?

Are Solar Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own Solar shares worth a considerable sum. Indeed, they hold kr.111m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 1.8% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Does Solar Deserve A Spot On Your Watchlist?

Solar's earnings have taken off like any random crypto-currency did, back in 2017. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So yes, on this short analysis I do think it's worth considering Solar for a spot on your watchlist. However, before you get too excited we've discovered 2 warning signs for Solar (1 is a bit unpleasant!) that you should be aware of.

Although Solar certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, 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.

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