Here's Why We Think Terna (BIT:TRN) Is Well Worth Watching

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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 Terna (BIT:TRN). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Terna with the means to add long-term value to shareholders.

Check out our latest analysis for Terna

How Fast Is Terna Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years Terna grew its EPS by 8.6% per year. That's a pretty good rate, if the company can sustain it.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Terna maintained stable EBIT margins over the last year, all while growing revenue 12% to €3.4b. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

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 Terna's future EPS 100% free.

Are Terna 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. Our analysis has discovered that the median total compensation for the CEOs of companies like Terna, with market caps over €7.3b, is about €3.4m.

Terna's CEO took home a total compensation package worth €1.8m in the year leading up to December 2023. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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.

Should You Add Terna To Your Watchlist?

One important encouraging feature of Terna is that it is growing profits. To add to this, the modest CEO compensation should tell investors that the directors have an active interest in delivering the best for shareholders. So all in all Terna is worthy at least considering for your watchlist. You should always think about risks though. Case in point, we've spotted 2 warning signs for Terna you should be aware of, and 1 of them doesn't sit too well with us.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in IT with promising growth potential and insider confidence.

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.