Do Steppe Cement's (LON:STCM) Earnings Warrant Your Attention?

By
Simply Wall St
Published
September 01, 2021
AIM:STCM
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 Steppe Cement (LON:STCM). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for Steppe Cement

How Fast Is Steppe Cement Growing Its Earnings Per Share?

Over the last three years, Steppe Cement has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Steppe Cement boosted its trailing twelve month EPS from US$0.044 to US$0.051, in the last year. I doubt many would complain about that 14% gain.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While Steppe Cement may have maintained EBIT margins over the last year, revenue has fallen. And that does make me a little more cautious of the stock.

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.

earnings-and-revenue-history
AIM:STCM Earnings and Revenue History September 1st 2021

Steppe Cement isn't a huge company, given its market capitalization of UK£129m. That makes it extra important to check on its balance sheet strength.

Are Steppe Cement Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own Steppe Cement shares worth a considerable sum. Given insiders own a small fortune of shares, currently valued at US$40m, they have plenty of motivation to push the business to succeed. At 31% of the company, the co-investment by insiders gives me confidence that management will make long-term focussed decisions.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations between US$100m and US$400m, like Steppe Cement, the median CEO pay is around US$561k.

The Steppe Cement CEO received total compensation of only US$30k in the year to . This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO - that is often a good sign. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add Steppe Cement To Your Watchlist?

As I already mentioned, Steppe Cement is a growing business, which is what I like to see. Earnings growth might be the main game for Steppe Cement, but the fun does not stop there. Boasting both modest CEO pay and considerable insider ownership, I'd argue this one is worthy of the watchlist, at least. You still need to take note of risks, for example - Steppe Cement has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

Although Steppe Cement certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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

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