Is Now The Time To Put Optex Systems Holdings (NASDAQ:OPXS) On Your Watchlist?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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

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Optex Systems Holdings' Improving Profits

In the last three years Optex Systems Holdings' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. It's good to see that Optex Systems Holdings' EPS has grown from US$0.62 to US$0.75 over twelve months. This amounts to a 20% gain; a figure that shareholders will be pleased to see.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. While we note Optex Systems Holdings achieved similar EBIT margins to last year, revenue grew by a solid 21% to US$39m. That's progress.

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.

Check out our latest analysis for Optex Systems Holdings

Optex Systems Holdings isn't a huge company, given its market capitalisation of US$106m. That makes it extra important to check on its balance sheet strength.

Are Optex Systems Holdings Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Shareholders will be pleased by the fact that insiders own Optex Systems Holdings shares worth a considerable sum. Indeed, they hold US$19m worth of its stock. This considerable investment should help drive long-term value in the business. Those holdings account for over 18% of the company; visible skin in the game.

Should You Add Optex Systems Holdings To Your Watchlist?

As previously touched on, Optex Systems Holdings is a growing business, which is encouraging. To add an extra spark to the fire, significant insider ownership in the company is another highlight. The combination definitely favoured by investors so consider keeping the company on a watchlist. It is worth noting though that we have found 1 warning sign for Optex Systems Holdings that you need to take into consideration.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in the US with promising growth potential and insider confidence.

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.