Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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). Now, I’m not saying that the stock is necessarily undervalued today; but I can’t shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Quickly Is Fisher & Paykel Healthcare Increasing Earnings Per Share?
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. Impressively, Fisher & Paykel Healthcare has grown EPS by 19% per year, compound, in the last three years. So it’s not surprising to see the company trades on a very high multiple of (past) earnings.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company’s growth. While we note Fisher & Paykel Healthcare’s EBIT margins were flat over the last year, revenue grew by a solid 18% to NZ$1.3b. 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.
Fortunately, we’ve got access to analyst forecasts of Fisher & Paykel Healthcare’s future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Fisher & Paykel Healthcare Insiders Aligned With All Shareholders?
Since Fisher & Paykel Healthcare has a market capitalization of NZ$18b, we wouldn’t expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. Indeed, they hold NZ$66m 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$12b, is about NZ$5.3m.
The Fisher & Paykel Healthcare CEO received NZ$3.2m 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. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add Fisher & Paykel Healthcare To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Fisher & Paykel Healthcare’s strong EPS growth. If you need more convincing beyond that EPS growth rate, don’t forget about the reasonable remuneration and the high insider ownership. Each to their own, but I think all this makes Fisher & Paykel Healthcare look rather interesting indeed. We should say that we’ve discovered 1 warning sign for Fisher & Paykel Healthcare that you should be aware of before investing here.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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