Does Transcat (NASDAQ:TRNS) Deserve A Spot 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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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 Transcat (NASDAQ:TRNS). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

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How Quickly Is Transcat Increasing Earnings Per Share?

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) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Over the last three years, Transcat has grown EPS by 5.7% per year. This may not be setting the world alight, but it does show that EPS is on the upwards trend.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Transcat achieved similar EBIT margins to last year, revenue grew by a solid 8.4% to US$272m. That's progress.

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.

See our latest analysis for Transcat

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Transcat's future profits .

Are Transcat 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 Transcat insiders have a significant amount of capital invested in the stock. Indeed, they hold US$21m worth of its stock. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 3.0%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, you'd argue that they are indeed. Our analysis has discovered that the median total compensation for the CEOs of companies like Transcat with market caps between US$400m and US$1.6b is about US$4.0m.

The Transcat CEO received US$2.4m in compensation for the year ending March 2024. That comes in below the average for similar sized companies and seems pretty reasonable. 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. It can also be a sign of a culture of integrity, in a broader sense.

Does Transcat Deserve A Spot On Your Watchlist?

One important encouraging feature of Transcat is that it is growing profits. Earnings growth might be the main attraction for Transcat, but the fun does not stop there. Boasting both modest CEO pay and considerable insider ownership, you'd argue this one is worthy of the watchlist, at least. Now, you could try to make up your mind on Transcat 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 Transcat certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of companies that not only boast of strong growth but have strong insider backing.

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.