Should You Be Adding Compass Group (LON:CPG) To Your Watchlist Today?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Compass Group (LON:CPG). 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 Compass Group

How Fast Is Compass Group Growing Its Earnings Per Share?

Over the last three years, Compass Group has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. Compass Group's EPS has risen over the last 12 months, growing from US$0.88 to US$1.04. This amounts to a 18% gain; a figure that shareholders will be pleased to see.

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. Compass Group maintained stable EBIT margins over the last year, all while growing revenue 15% to US$41b. That's encouraging news for the company!

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

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

Are Compass 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We note that Compass Group insiders spent US$91k on stock, over the last year; in contrast, we didn't see any selling. That paints the company in a nice light, as it signals that its leaders are feeling confident in where the company is heading. We also note that it was the Independent Non-Executive Director, Arlene Isaacs-Lowe, who made the biggest single acquisition, paying UK£61k for shares at about UK£21.76 each.

Along with the insider buying, another encouraging sign for Compass Group is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$14m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 0.03% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Should You Add Compass Group To Your Watchlist?

As previously touched on, Compass Group is a growing business, which is encouraging. On top of that, we've seen insiders buying shares even though they already own plenty. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. Before you take the next step you should know about the 1 warning sign for Compass Group that we have uncovered.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Compass Group, you'll probably love this curated collection of companies in GB that have an attractive valuation alongside 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.

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