Here's Why We Think Laboratorios Farmaceuticos Rovi (BME:ROVI) Is Well Worth Watching

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. 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 Laboratorios Farmaceuticos Rovi (BME:ROVI). 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.

Check out our latest analysis for Laboratorios Farmaceuticos Rovi

How Fast Is Laboratorios Farmaceuticos Rovi Growing Its Earnings Per Share?

Over the last three years, Laboratorios Farmaceuticos Rovi has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like a wedge-tailed eagle on the wind, Laboratorios Farmaceuticos Rovi's EPS soared from €0.83 to €1.28, in just one year. That's a impressive gain of 54%.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The good news is that Laboratorios Farmaceuticos Rovi is growing revenues, and EBIT margins improved by 8.1 percentage points to 20%, over the last year. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Laboratorios Farmaceuticos Rovi?

Are Laboratorios Farmaceuticos Rovi Insiders Aligned With All Shareholders?

As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. For companies with market capitalizations between €1.6b and €5.2b, like Laboratorios Farmaceuticos Rovi, the median CEO pay is around €1.4m.

The CEO of Laboratorios Farmaceuticos Rovi only received €561k in total compensation for the year ending . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add Laboratorios Farmaceuticos Rovi To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Laboratorios Farmaceuticos Rovi's strong EPS growth. The fast growth bodes well while the very reasonable CEO pay assists builds some confidence in the board. So I'd venture it may well deserve a spot on your watchlist, or even a little further research. You still need to take note of risks, for example - Laboratorios Farmaceuticos Rovi has 1 warning sign we think you should be aware of.

Although Laboratorios Farmaceuticos Rovi 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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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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