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. And in . found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.
In contrast to all that, I prefer to spend time on companies like Gencor Industries (NASDAQ:GENC), which has not only revenues, but also profits. Now, I’m not saying that the stock is necessarily undervalued today; but I can’t shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.
Gencor Industries’s Improving Profits
In the last three years Gencor Industries’s earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn’t tell us much. As a result, I’ll zoom in on growth over the last year, instead. Gencor Industries boosted its trailing twelve month EPS from US$0.65 to US$0.73, in the last year. That’s a 12% gain; respectable growth in the broader scheme of things.
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). Gencor Industries shareholders can take confidence from the fact that EBIT margins are up from 12% to 14%, and revenue is growing. That’s great to see, on both counts.
In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.
Since Gencor Industries is no giant, with a market capitalization of US$181m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Gencor Industries 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 Gencor Industries insiders own a meaningful share of the business. Actually, with 38% of the company to their names, insiders are profoundly invested in the business. I’m always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. That means insiders have US$69m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!
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. I discovered that the median total compensation for the CEOs of companies like Gencor Industries with market caps between US$100m and US$400m is about US$1.0m.
The CEO of Gencor Industries only received US$451k in total compensation for the year ending September 2018. That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. 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 Gencor Industries To Your Watchlist?
One positive for Gencor Industries is that it is growing EPS. That’s nice to see. Earnings growth might be the main game for Gencor Industries, but the fun does not stop there. Boasting both modest CEO pay and considerable insider ownership, I’d argue this one is worthy of the watchlist, at least. Now, you could try to make up your mind on Gencor Industries by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
Although Gencor Industries certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, 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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