If EPS Growth Is Important To You, Keywords Studios (LON:KWS) Presents An Opportunity

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.

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 Keywords Studios (LON:KWS). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Keywords Studios with the means to add long-term value to shareholders.

View our latest analysis for Keywords Studios

Keywords Studios' Earnings Per Share Are Growing

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. Keywords Studios' shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 56%. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.

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. While we note Keywords Studios achieved similar EBIT margins to last year, revenue grew by a solid 36% to €595m. That's encouraging news for the company!

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.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Keywords Studios' future EPS 100% free.

Are Keywords Studios 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.

The good news for Keywords Studios shareholders is that no insiders reported selling shares in the last year. Add in the fact that Marion Sears, the Independent Non-Executive Director of the company, paid €25k for shares at around €24.90 each. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.

The good news, alongside the insider buying, for Keywords Studios bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold €17m worth of its stock. This considerable investment should help drive long-term value in the business. Despite being just 0.8% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because Keywords Studios' CEO, Bertrand J. F. Bodson, is paid at a relatively modest level when compared to other CEOs for companies of this size. The median total compensation for CEOs of companies similar in size to Keywords Studios, with market caps between €1.9b and €6.0b, is around €2.8m.

The Keywords Studios CEO received total compensation of just €734k in the year to December 2021. First impressions seem to indicate a compensation policy that is favourable to shareholders. 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. It can also be a sign of good governance, more generally.

Does Keywords Studios Deserve A Spot On Your Watchlist?

Keywords Studios' earnings per share growth have been climbing higher at an appreciable rate. The cherry on top is that insiders own a bunch of shares, and one has been buying more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Keywords Studios deserves timely attention. We should say that we've discovered 1 warning sign for Keywords Studios that you should be aware of before investing here.

Keen growth investors love to see insider buying. Thankfully, Keywords Studios isn't the only one. You can see a a free list of them here.

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.