Here's Why I Think AS Merko Ehitus (TAL:MRK1T) Might Deserve Your Attention Today

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like AS Merko Ehitus (TAL:MRK1T). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for AS Merko Ehitus

How Fast Is AS Merko Ehitus 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. Who among us would not applaud AS Merko Ehitus's stratospheric annual EPS growth of 41%, compound, over the last three years? Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. AS Merko Ehitus's EBIT margins have actually improved by 2.8 percentage points in the last year, to reach 6.8%, but, on the flip side, revenue was down 11%. That falls short of ideal.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

AS Merko Ehitus isn't a huge company, given its market capitalization of €188m. That makes it extra important to check on its balance sheet strength.

Are AS Merko Ehitus 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. I discovered that the median total compensation for the CEOs of companies like AS Merko Ehitus with market caps between €82m and €329m is about €430k.

AS Merko Ehitus offered total compensation worth €330k to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Does AS Merko Ehitus Deserve A Spot On Your Watchlist?

AS Merko Ehitus's earnings per share have taken off like a rocket aimed right at the moon. Such fast EPS growth makes me wonder if the business has hit an inflection point (and I mean the good kind.) Meanwhile, the very reasonable CEO pay reassures me a little, since it points to an absence profligacy. So AS Merko Ehitus looks like it could be a good quality growth stock, at first glance. That's worth watching. You should always think about risks though. Case in point, we've spotted 1 warning sign for AS Merko Ehitus 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.

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This article by Simply Wall St is general in nature. 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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