Here's Why We Think Kainos Group (LON:KNOS) Is Well Worth Watching

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Kainos Group (LON:KNOS), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Kainos Group with the means to add long-term value to shareholders.

See our latest analysis for Kainos Group

How Fast Is Kainos Group 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) outcomes. That makes EPS growth an attractive quality for any company. Impressively, Kainos Group has grown EPS by 29% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

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. Kainos Group maintained stable EBIT margins over the last year, all while growing revenue 24% to UK£375m. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

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 Kainos Group's future profits.

Are Kainos Group Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

With strong conviction, Kainos Group insiders have stood united by refusing to sell shares over the last year. But the bigger deal is that the Non-Executive Director, Mary Davis, paid UK£100k to buy shares at an average price of UK£15.64. It seems at least one insider has seen potential in the company's future - and they're willing to put money on the line.

The good news, alongside the insider buying, for Kainos Group bulls is that insiders (collectively) have a meaningful investment in the stock. We note that their impressive stake in the company is worth UK£425m. That equates to 25% of the company, making insiders powerful and aligned with other shareholders. Looking very optimistic for investors.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Brendan Mooney, is paid less than the median for similar sized companies. For companies with market capitalisations between UK£801m and UK£2.6b, like Kainos Group, the median CEO pay is around UK£1.6m.

Kainos Group's CEO took home a total compensation package of UK£645k in the year prior to March 2022. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Is Kainos Group Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Kainos Group's strong EPS growth. Better still, insiders own a large chunk of the company and one has even been buying more shares. Astute investors will want to keep this stock on watch. Of course, just because Kainos Group is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

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