Here's Why I Think NTT System (WSE:NTT) Might Deserve Your Attention Today

By
Simply Wall St
Published
February 25, 2022
WSE:NTT
Source: Shutterstock

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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in NTT System (WSE:NTT). 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.

See our latest analysis for NTT System

How Quickly Is NTT System Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. I, for one, am blown away by the fact that NTT System has grown EPS by 48% per year, 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.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). NTT System maintained stable EBIT margins over the last year, all while growing revenue 52% to zł1.0b. That's progress.

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.

earnings-and-revenue-history
WSE:NTT Earnings and Revenue History February 25th 2022

NTT System isn't a huge company, given its market capitalization of zł54m. That makes it extra important to check on its balance sheet strength.

Are NTT System Insiders Aligned With All Shareholders?

Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So we're pleased to report that NTT System insiders own a meaningful share of the business. Indeed, with a collective holding of 69%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Of course, NTT System is a very small company, with a market cap of only zł54m. So despite a large proportional holding, insiders only have zł37m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

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. For companies with market capitalizations under zł843m, like NTT System, the median CEO pay is around zł520k.

The NTT System CEO received zł294k 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 good governance, more generally.

Should You Add NTT System To Your Watchlist?

NTT System's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The sharp increase in earnings could signal good business momentum. Big growth can make big winners, so I do think NTT System is worth considering carefully. It is worth noting though that we have found 3 warning signs for NTT System that you need to take into consideration.

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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