Here's Why Gates Industrial (NYSE:GTES) Has Caught The Eye Of Investors

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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Gates Industrial (NYSE:GTES). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Gates Industrial with the means to add long-term value to shareholders.

View our latest analysis for Gates Industrial

How Quickly Is Gates Industrial Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Recognition must be given to the that Gates Industrial has grown EPS by 54% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors. Getting in to the the finer details, it important to know that the EPS growth has been helped by share buybacks, demonstrating that the business is positioned to return capital to its shareholders.

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. Gates Industrial maintained stable EBIT margins over the last year, all while growing revenue 3.2% to US$3.6b. That's encouraging news for the company!

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.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Gates Industrial's forecast profits?

Are Gates Industrial Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Any way you look at it Gates Industrial shareholders can gain quiet confidence from the fact that insiders shelled out US$611k to buy stock, over the last year. When you contrast that with the complete lack of sales, it's easy for shareholders to be brimming with joyful expectancy. It is also worth noting that it was Independent Director Fredrik Eliasson who made the biggest single purchase, worth US$579k, paying US$11.57 per share.

On top of the insider buying, it's good to see that Gates Industrial insiders have a valuable investment in the business. To be specific, they have US$14m worth of shares. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 0.4%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because Gates Industrial's CEO, Ivo Jurek, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Gates Industrial with market caps between US$2.0b and US$6.4b is about US$6.7m.

Gates Industrial offered total compensation worth US$5.0m to its CEO in the year to December 2022. That comes in below the average for similar sized companies and seems pretty reasonable. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Gates Industrial Worth Keeping An Eye On?

Gates Industrial's earnings have taken off in quite an impressive fashion. Just as heartening; insiders both own and are buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Gates Industrial belongs near the top of your watchlist. What about risks? Every company has them, and we've spotted 1 warning sign for Gates Industrial you should know about.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Gates Industrial, you'll probably love this free list of growing companies that insiders are buying.

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.