Stock Analysis

Here's Why We Think Ultra Electronics Holdings (LON:ULE) Is Well Worth Watching

  •  Updated
LSE:ULE
Source: Shutterstock

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

So if you're like me, you might be more interested in profitable, growing companies, like Ultra Electronics Holdings (LON:ULE). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Ultra Electronics Holdings

How Fast Is Ultra Electronics Holdings Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Ultra Electronics Holdings grew its EPS by 5.4% per year. While that sort of growth rate isn't amazing, it does show the business is growing.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Ultra Electronics Holdings maintained stable EBIT margins over the last year, all while growing revenue 6.0% to UK£851m. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

earnings-and-revenue-history
LSE:ULE Earnings and Revenue History December 30th 2020

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

Are Ultra Electronics Holdings Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Any way you look at it Ultra Electronics Holdings shareholders can gain quiet confidence from the fact that insiders shelled out UK£536k to buy stock, over the last year. And when you consider that there was no insider selling, you can understand why shareholders might believe that lady luck will grace this business. It is also worth noting that it was Chairman of the Board William Rice who made the biggest single purchase, worth UK£119k, paying UK£23.75 per share.

Does Ultra Electronics Holdings Deserve A Spot On Your Watchlist?

As I already mentioned, Ultra Electronics Holdings is a growing business, which is what I like to see. Not every business can grow its EPS, but Ultra Electronics Holdings certainly can. The gravy on the mushroom pie is the insider buying, which has me tasting potential opportunity; one for the watchlist, I'd posit. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Ultra Electronics Holdings. You might benefit from giving it a glance today.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Ultra Electronics Holdings, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

If you’re looking to trade Ultra Electronics Holdings, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted


Valuation is complex, but we're helping make it simple.

Find out whether Ultra Electronics Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis