Stock Analysis

Is Now The Time To Put Brødrene Hartmann (CPH:HART) On Your Watchlist?

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CPSE:HART
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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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 Brødrene Hartmann (CPH:HART). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

See our latest analysis for Brødrene Hartmann

How Fast Is Brødrene Hartmann Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that Brødrene Hartmann has managed to grow EPS by 25% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Brødrene Hartmann shareholders can take confidence from the fact that EBIT margins are up from 9.7% to 16%, and revenue is growing. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

earnings-and-revenue-history
CPSE:HART Earnings and Revenue History December 7th 2020

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Brødrene Hartmann's balance sheet strength, before getting too excited.

Are Brødrene Hartmann Insiders Aligned With All Shareholders?

I always like to check up on CEO compensation, because I think that reasonable pay levels, around or below the median, can be a sign that shareholder interests are well considered. For companies with market capitalizations between kr.2.5b and kr.9.8b, like Brødrene Hartmann, the median CEO pay is around kr.9.0m.

The Brødrene Hartmann CEO received kr.5.8m in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add Brødrene Hartmann To Your Watchlist?

You can't deny that Brødrene Hartmann has grown its earnings per share at a very impressive rate. That's attractive. With swiftly growing earnings, it probably has its best days ahead, and the modest CEO pay suggests the company is careful with cash. So I'd venture it may well deserve a spot on your watchlist, or even a little further research. We don't want to rain on the parade too much, but we did also find 1 warning sign for Brødrene Hartmann that you need to be mindful 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.

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