Is Now The Time To Put Sampo Oyj (HEL:SAMPO) On Your Watchlist?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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 Sampo Oyj (HEL:SAMPO). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Sampo Oyj with the means to add long-term value to shareholders.

See our latest analysis for Sampo Oyj

How Fast Is Sampo Oyj Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shareholders will be happy to know that Sampo Oyj's EPS has grown 19% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

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. It's noted that, last year, Sampo Oyj's revenue from operations was lower than its revenue, so that could distort our analysis of its margins. Unfortunately, Sampo Oyj's revenue dropped 12% last year, but the silver lining is that EBIT margins improved from 5.2% to 29%. While not disastrous, these figures could be better.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Sampo Oyj's future profits.

Are Sampo Oyj Insiders Aligned With All Shareholders?

Since Sampo Oyj has a market capitalisation of €23b, we wouldn't expect insiders to hold a large percentage of shares. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. Notably, they have an enviable stake in the company, worth €199m. We note that this amounts to 0.9% of the company, which may be small owing to the sheer size of Sampo Oyj but it's still worth mentioning. This should still be a great incentive for management to maximise shareholder value.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to Sampo Oyj, with market caps over €7.9b, is around €4.3m.

The Sampo Oyj CEO received €2.5m in compensation for the year ending December 2021. That is actually below the median for CEO's of similarly sized companies. 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 Sampo Oyj Worth Keeping An Eye On?

You can't deny that Sampo Oyj has grown its earnings per share at a very impressive rate. That's attractive. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. The overarching message here is that Sampo Oyj has underlying strengths that make it worth a look at. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Sampo Oyj (at least 2 which can't be ignored) , and understanding them should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.