Stock Analysis

Does Mercury NZ (NZSE:MCY) Deserve A Spot On Your Watchlist?

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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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 Mercury NZ (NZSE:MCY). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Mercury NZ with the means to add long-term value to shareholders.

See our latest analysis for Mercury NZ

How Fast Is Mercury NZ Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. 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 Mercury NZ grew its EPS by 8.9% per year. That's a pretty good rate, if the company can sustain it.

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. While we note Mercury NZ achieved similar EBIT margins to last year, revenue grew by a solid 7.0% to NZ$2.2b. That's encouraging news for the company!

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

NZSE:MCY Earnings and Revenue History February 5th 2023

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 Mercury NZ's future EPS 100% free.

Are Mercury NZ 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. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We note that Mercury NZ insiders spent NZ$91k on stock, over the last year; in contrast, we didn't see any selling. This is a good look for the company as it paints an optimistic picture for the future.

Recent insider purchases of Mercury NZ stock is not the only way management has kept the interests of the general public shareholders in mind. Namely, Mercury NZ has a very reasonable level of CEO pay. Our analysis has discovered that the median total compensation for the CEOs of companies like Mercury NZ with market caps between NZ$6.3b and NZ$19b is about NZ$3.1m.

Mercury NZ offered total compensation worth NZ$2.1m to its CEO in the year to June 2022. That is actually below the median for CEO's of similarly 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 a culture of integrity, in a broader sense.

Does Mercury NZ Deserve A Spot On Your Watchlist?

One important encouraging feature of Mercury NZ is that it is growing profits. And there's more to love too, with modest CEO remuneration and insider buying interest continuing the positives for the company. All things considered, Mercury NZ is certainly displaying its merits and is worthy of taking research to the next step. We don't want to rain on the parade too much, but we did also find 3 warning signs for Mercury NZ (1 makes us a bit uncomfortable!) that you need to be mindful of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Mercury NZ, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Valuation is complex, but we're helping make it simple.

Find out whether Mercury NZ is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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