Should You Be Adding Ashtead Technology Holdings (LON:AT.) To Your Watchlist Today?

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.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Ashtead Technology Holdings (LON:AT.). 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.

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Ashtead Technology Holdings' Improving Profits

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's easy to see why many investors focus in on EPS growth. Commendations have to be given in seeing that Ashtead Technology Holdings grew its EPS from UK£0.01 to UK£0.089, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. The good news is that Ashtead Technology Holdings is growing revenues, and EBIT margins improved by 13.7 percentage points to 17%, over the last year. Both of which are great metrics to check off for potential growth.

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.

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 Ashtead Technology Holdings' future profits.

Are Ashtead Technology Holdings 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. Our analysis has discovered that the median total compensation for the CEOs of companies like Ashtead Technology Holdings with market caps between UK£163m and UK£654m is about UK£867k.

Ashtead Technology Holdings' CEO took home a total compensation package of UK£320k in the year prior to December 2021. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. 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 Ashtead Technology Holdings Worth Keeping An Eye On?

Ashtead Technology Holdings' earnings per share growth have been climbing higher at an appreciable rate. With increasing profits, its seems likely the business has a rosy future; and it may have hit an inflection point. At the same time the reasonable CEO compensation reflects well on the board of directors. It will definitely require further research to be sure, but it does seem that Ashtead Technology Holdings has the hallmarks of a quality business; and that would make it well worth watching. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Ashtead Technology Holdings.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.

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.