If EPS Growth Is Important To You, Gestamp Automoción (BME:GEST) Presents An Opportunity

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 Gestamp Automoción (BME:GEST). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Gestamp Automoción

How Fast Is Gestamp Automoción Growing Its Earnings Per Share?

Over the last three years, Gestamp Automoción has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. Gestamp Automoción's EPS skyrocketed from €0.33 to €0.53, in just one year; a result that's bound to bring a smile to shareholders. That's a commendable gain of 61%.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. EBIT margins for Gestamp Automoción remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 36% to €12b. That's progress.

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.

Fortunately, we've got access to analyst forecasts of Gestamp Automoción's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Gestamp Automoción Insiders Aligned With All Shareholders?

As a general rule, it's worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. The median total compensation for CEOs of companies similar in size to Gestamp Automoción, with market caps between €1.8b and €5.9b, is around €1.2m.

Gestamp Automoción offered total compensation worth €646k to its CEO in the year to December 2022. That comes in below the average for similar sized companies and seems pretty reasonable. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Is Gestamp Automoción Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Gestamp Automoción's strong EPS growth. With swiftly growing earnings, the best days may still be to come, and the modest CEO pay suggests the company is careful with cash. We think that based on its merits alone, this stock is worth watching into the future. You should always think about risks though. Case in point, we've spotted 2 warning signs for Gestamp Automoción you should be aware of.

The beauty of investing is that you can invest in almost 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. 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.