Does Smart Metering Systems (LON:SMS) Deserve A Spot 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. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Smart Metering Systems (LON:SMS). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for Smart Metering Systems

Smart Metering Systems' Improving Profits

Even when EPS earnings per share (EPS) growth is unexceptional, company value can be created if this rate is sustained each year. So EPS growth can certainly encourage an investor to take note of a stock. Commendations have to be given in seeing that Smart Metering Systems grew its EPS from UK£0.015 to UK£0.055, in one short year. Even though that growth rate may not be repeated, that looks like a breakout improvement. This could point to the business hitting a point of inflection.

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. While we note Smart Metering Systems achieved similar EBIT margins to last year, revenue grew by a solid 19% to UK£119m. That's encouraging news for the company!

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

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 Smart Metering Systems' future profits.

Are Smart Metering Systems 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Any way you look at it Smart Metering Systems shareholders can gain quiet confidence from the fact that insiders shelled out UK£210k 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 there are brighter days ahead. It is also worth noting that it was CEO & Director Timothy Mortlock who made the biggest single purchase, worth UK£100k, paying UK£7.11 per share.

Along with the insider buying, another encouraging sign for Smart Metering Systems is that insiders, as a group, have a considerable shareholding. With a whopping UK£44m worth of shares as a group, insiders have plenty riding on the company's success. That's certainly enough to let shareholders know that management will be very focussed on long term growth.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because Smart Metering Systems' CEO, Tim Mortlock, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Smart Metering Systems with market caps between UK£821m and UK£2.6b is about UK£1.8m.

The Smart Metering Systems CEO received total compensation of just UK£460k in the year 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Should You Add Smart Metering Systems To Your Watchlist?

Smart Metering Systems' earnings have taken off in quite an impressive fashion. What's more, insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Smart Metering Systems deserves timely attention. It is worth noting though that we have found 2 warning signs for Smart Metering Systems (1 shouldn't be ignored!) that you need to take into consideration.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Smart Metering Systems, 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.

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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.