Here's Why We Think LUG (WSE:LUG) Is Well Worth Watching
For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like LUG (WSE:LUG). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
View our latest analysis for LUG
How Fast Is LUG Growing Its Earnings Per Share?
LUG has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. To the delight of shareholders, LUG's EPS soared from zł0.39 to zł0.63, over the last year. That's a impressive gain of 63%.
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. While we note LUG achieved similar EBIT margins to last year, revenue grew by a solid 21% to zł235m. That's a real positive.
In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.
Since LUG is no giant, with a market capitalisation of zł38m, you should definitely check its cash and debt before getting too excited about its prospects.
Are LUG Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So we're pleased to report that LUG insiders own a meaningful share of the business. Indeed, with a collective holding of 55%, company insiders are in control and have plenty of capital behind the venture. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. Of course, LUG is a very small company, with a market cap of only zł38m. That means insiders only have zł21m worth of shares, despite the large proportional holding. This isn't an overly large holding but it should still keep the insiders motivated to deliver the best outcomes for shareholders.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to LUG, with market caps under zł868m is around zł607k.
The LUG CEO received total compensation of only zł180k in the year to December 2021. This total may indicate that the CEO is sacrificing take home pay for performance-based benefits, ensuring that their motivations are synonymous with strong company results. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Is LUG Worth Keeping An Eye On?
For growth investors, LUG's raw rate of earnings growth is a beacon in the night. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. Everyone has their own preferences when it comes to investing but it definitely makes LUG look rather interesting indeed. Don't forget that there may still be risks. For instance, we've identified 4 warning signs for LUG (3 don't sit too well with us) you should be aware of.
Although LUG certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
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.
LUG S.A. manufactures and sells luminaires and lighting systems worldwide.
Good value with imperfect balance sheet.