Here's Why We Think CI Systems (Israel) (TLV:CISY) Is Well Worth Watching

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. 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 CI Systems (Israel) (TLV:CISY). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for CI Systems (Israel)

CI Systems (Israel)'s Improving Profits

Over the last three years, CI Systems (Israel) 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. Impressively, CI Systems (Israel)'s EPS catapulted from US$0.10 to US$0.30, over the last year. It's a rarity to see 192% year-on-year growth like that. The best case scenario? That the business has hit a true inflection point.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The good news is that CI Systems (Israel) is growing revenues, and EBIT margins improved by 6.9 percentage points to 13%, over the last year. Ticking those two boxes is a good sign of growth, in our book.

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.

Since CI Systems (Israel) is no giant, with a market capitalisation of ₪106m, you should definitely check its cash and debt before getting too excited about its prospects.

Are CI Systems (Israel) Insiders Aligned With All Shareholders?

As a general rule, it's worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. For companies with market capitalisations under US$200m, like CI Systems (Israel), the median CEO pay is around US$430k.

The CI Systems (Israel) CEO received US$317k in compensation for the year ending December 2021. That comes in below the average for similar sized companies and seems pretty reasonable. 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 a culture of integrity, in a broader sense.

Should You Add CI Systems (Israel) To Your Watchlist?

CI Systems (Israel)'s earnings per share have been soaring, with growth rates sky high. Such fast EPS growth prompts the question: has the business reached an inflection point? At the same time the reasonable CEO compensation reflects well on the board of directors. It will definitely require further research to be sure, but it does seem that CI Systems (Israel) has the hallmarks of a quality business; and that would make it well worth watching. What about risks? Every company has them, and we've spotted 3 warning signs for CI Systems (Israel) (of which 2 are significant!) you should know about.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access 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.