Does TransDigm Group (NYSE:TDG) 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. 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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like TransDigm Group (NYSE:TDG). 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.

See our latest analysis for TransDigm Group

How Fast Is TransDigm Group Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. Recognition must be given to the that TransDigm Group has grown EPS by 41% per year, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.

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. The good news is that TransDigm Group is growing revenues, and EBIT margins improved by 4.0 percentage points to 45%, over the last year. That's great to see, on both counts.

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.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for TransDigm Group.

Are TransDigm Group Insiders Aligned With All Shareholders?

Owing to the size of TransDigm Group, we wouldn't expect insiders to hold a significant proportion of the company. But we are reassured by the fact they have invested in the company. Notably, they have an enviable stake in the company, worth US$224m. While that is a lot of skin in the game, we note this holding only totals to 0.4% of the business, which is a result of the company being so large. This should still be a great incentive for management to maximise shareholder value.

Is TransDigm Group Worth Keeping An Eye On?

TransDigm Group's earnings per share have been soaring, with growth rates sky high. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So based on this quick analysis, we do think it's worth considering TransDigm Group for a spot on your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with TransDigm Group (at least 2 which are significant) , and understanding these should be part of your investment process.

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.