Stock Analysis

Here's Why We Think Orion Energy Systems (NASDAQ:OESX) Is Well Worth Watching

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NasdaqCM:OESX
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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In contrast to all that, I prefer to spend time on companies like Orion Energy Systems (NASDAQ:OESX), 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. 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.

Check out our latest analysis for Orion Energy Systems

Orion Energy Systems's Improving Profits

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. You can imagine, then, that it almost knocked my socks off when I realized that Orion Energy Systems grew its EPS from US$0.21 to US$1.00, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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. Orion Energy Systems shareholders can take confidence from the fact that EBIT margins are up from 6.1% to 8.7%, and revenue is growing. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NasdaqCM:OESX Earnings and Revenue History September 14th 2021

Fortunately, we've got access to analyst forecasts of Orion Energy Systems's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Orion Energy Systems Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own Orion Energy Systems shares worth a considerable sum. Indeed, they hold US$15m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 11% of the company; visible skin in the game.

Should You Add Orion Energy Systems To Your Watchlist?

Orion Energy Systems's earnings have taken off like any random crypto-currency did, back in 2017. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So yes, on this short analysis I do think it's worth considering Orion Energy Systems for a spot on your watchlist. We should say that we've discovered 2 warning signs for Orion Energy Systems (1 is significant!) that you should be aware of before investing here.

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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