Do Fisher & Paykel Healthcare's (NZSE:FPH) Earnings Warrant Your Attention?

By
Simply Wall St
Published
July 07, 2021
NZSE:FPH
Source: Shutterstock

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Fisher & Paykel Healthcare (NZSE:FPH). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for Fisher & Paykel Healthcare

How Fast Is Fisher & Paykel Healthcare Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Who among us would not applaud Fisher & Paykel Healthcare's stratospheric annual EPS growth of 40%, compound, over the last three years? While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.

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. Fisher & Paykel Healthcare shareholders can take confidence from the fact that EBIT margins are up from 30% to 36%, and revenue is growing. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
NZSE:FPH Earnings and Revenue History July 7th 2021

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 Fisher & Paykel Healthcare's future profits.

Are Fisher & Paykel Healthcare Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a NZ$17b company like Fisher & Paykel Healthcare. But we do take comfort from the fact that they are investors in the company. Indeed, they hold NZ$62m worth of its stock. That's a lot of money, and no small incentive to work hard. Even though that's only about 0.4% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. I discovered that the median total compensation for the CEOs of companies like Fisher & Paykel Healthcare, with market caps over NZ$11b, is about NZ$4.7m.

The Fisher & Paykel Healthcare CEO received NZ$4.0m in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add Fisher & Paykel Healthcare To Your Watchlist?

Fisher & Paykel Healthcare's earnings per share have taken off like a rocket aimed right at the moon. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The sharp increase in earnings could signal good business momentum. Big growth can make big winners, so I do think Fisher & Paykel Healthcare is worth considering carefully. Before you take the next step you should know about the 1 warning sign for Fisher & Paykel Healthcare that we have uncovered.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like 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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