With EPS Growth And More, Smiths Group (LON:SMIN) Makes An Interesting Case

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Smiths Group (LON:SMIN), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Smiths Group with the means to add long-term value to shareholders.

Check out our latest analysis for Smiths Group

How Quickly Is Smiths Group Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Smiths Group has grown EPS by 23% per year, compound, in the last 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. EBIT margins for Smiths Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 3.1% to UK£3.1b. That's progress.

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.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Smiths Group?

Are Smiths Group Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

It's good to see Smiths Group insiders walking the walk, by spending UK£562k on shares in just twelve months. And when you consider that there was no insider selling, you can understand why shareholders might believe that there are brighter days ahead. It is also worth noting that it was Independent Non Executive Chairman Steven Williams who made the biggest single purchase, worth UK£338k, paying UK£16.88 per share.

It's reassuring that Smiths Group insiders are buying the stock, but that's not the only reason to think management are fair to shareholders. Namely, Smiths Group has a very reasonable level of CEO pay. The median total compensation for CEOs of companies similar in size to Smiths Group, with market caps between UK£3.2b and UK£9.5b, is around UK£2.6m.

The Smiths Group CEO received UK£2.3m in compensation for the year ending July 2024. That seems pretty reasonable, especially given it's below the median for similar sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Should You Add Smiths Group To Your Watchlist?

You can't deny that Smiths Group has grown its earnings per share at a very impressive rate. That's attractive. But wait, it gets better. We have seen insider buying and the executive pay seems on the modest side of things. The overriding message from this quick rundown is yes, this stock is worth investigating further. You should always think about risks though. Case in point, we've spotted 1 warning sign for Smiths Group you should be aware of.

The good news is that Smiths Group is not the only stock with insider buying. Here's a list of small cap, undervalued companies in GB 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.