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 completely lacks a track record of revenue and profit. 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.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Fortnox (STO:FNOX). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
How Fast Is Fortnox Growing?
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 Fortnox has grown EPS by 42% per year, over the last three years. That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.
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. On the one hand, Fortnox's EBIT margins fell over the last year, but on the other hand, revenue grew. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
Fortunately, we've got access to analyst forecasts of Fortnox's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Fortnox Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own Fortnox shares worth a considerable sum. Indeed, they have a glittering mountain of wealth invested in it, currently valued at kr6.7b. Coming in at 23% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? 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 Fortnox with market caps between kr20b and kr63b is about kr9.7m.
Fortnox offered total compensation worth kr6.2m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar 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. I'd also argue reasonable pay levels attest to good decision making more generally.
Does Fortnox Deserve A Spot On Your Watchlist?
Fortnox's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. 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 Fortnox is worth considering carefully. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Fortnox , and understanding it should be part of your investment process.
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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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.