Here's Why We Think Reach Subsea (OB:REACH) Might Deserve Your Attention Today

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Reach Subsea (OB:REACH). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Reach Subsea with the means to add long-term value to shareholders.

View our latest analysis for Reach Subsea

Reach Subsea's Earnings Per Share Are 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 Reach Subsea grew its EPS by 11% per year. That's a pretty good rate, if the company can sustain it.

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. The music to the ears of Reach Subsea shareholders is that EBIT margins have grown from 11% to 15% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

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.

Since Reach Subsea is no giant, with a market capitalisation of kr2.1b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Reach Subsea 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Insiders both bought and sold Reach Subsea shares in the last year, but the good news is they spent kr509k more buying than they netted selling. So, on balance, the insider transactions are mildly encouraging. Zooming in, we can see that the biggest insider purchase was by Independent Director Kristine Skeie for kr880k worth of shares, at about kr8.80 per share.

It's reassuring that Reach Subsea insiders are buying the stock, but that's not the only reason to think management are fair to shareholders. To be specific, the CEO is paid modestly when compared to company peers of the same size. The median total compensation for CEOs of companies similar in size to Reach Subsea, with market caps between kr1.1b and kr4.4b, is around kr5.9m.

Reach Subsea's CEO took home a total compensation package worth kr3.2m 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.

Is Reach Subsea Worth Keeping An Eye On?

One positive for Reach Subsea is that it is growing EPS. That's nice to see. And there's more to love too, with modest CEO remuneration and insider buying interest continuing the positives for the company. The sum of all that, points to a quality business, and a genuine prospect for further research. What about risks? Every company has them, and we've spotted 4 warning signs for Reach Subsea you should know about.

Keen growth investors love to see insider activity. Thankfully, Reach Subsea isn't the only one. You can see a a curated list of Norwegian companies which have exhibited consistent growth accompanied by high insider ownership.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com