Stock Analysis

Here's Why We Think Modine Manufacturing (NYSE:MOD) Is Well Worth Watching

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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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Modine Manufacturing (NYSE:MOD). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Modine Manufacturing with the means to add long-term value to shareholders.

View our latest analysis for Modine Manufacturing

Modine Manufacturing's Improving Profits

Over the last three years, Modine Manufacturing has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. In impressive fashion, Modine Manufacturing's EPS grew from US$1.64 to US$2.94, over the previous 12 months. It's a rarity to see 79% year-on-year growth like that.

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. Modine Manufacturing shareholders can take confidence from the fact that EBIT margins are up from 4.5% to 6.7%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

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.

NYSE:MOD Earnings and Revenue History June 1st 2023

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Modine Manufacturing.

Are Modine Manufacturing Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. So it is good to see that Modine Manufacturing insiders have a significant amount of capital invested in the stock. Indeed, they hold US$30m worth of its stock. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 2.1%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations between US$1.0b and US$3.2b, like Modine Manufacturing, the median CEO pay is around US$5.3m.

The Modine Manufacturing CEO received total compensation of just US$2.0m in the year to March 2022. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Should You Add Modine Manufacturing To Your Watchlist?

Modine Manufacturing's earnings per share growth have been climbing higher at an appreciable rate. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The strong EPS improvement suggests the businesses is humming along. Modine Manufacturing is certainly doing some things right and is well worth investigating. You still need to take note of risks, for example - Modine Manufacturing has 1 warning sign we think you should be aware of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you 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.

What are the risks and opportunities for Modine Manufacturing?

Modine Manufacturing Company provides engineered heat transfer systems and heat transfer components for use in on- and off-highway original equipment manufacturer (OEM) vehicular applications.

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  • Trading at 38.4% below our estimate of its fair value

  • Earnings grew by 88.9% over the past year


  • Earnings are forecast to decline by an average of 2.8% per year for the next 3 years

  • Significant insider selling over the past 3 months

  • Has a high level of debt

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