Does TransDigm Group (NYSE:TDG) Deserve A Spot On Your Watchlist?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.

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 TransDigm Group (NYSE:TDG). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

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How Quickly Is TransDigm Group Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. It certainly is nice to see that TransDigm Group has managed to grow EPS by 29% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

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. TransDigm Group maintained stable EBIT margins over the last year, all while growing revenue 15% to US$8.4b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

View our latest analysis for TransDigm Group

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

Are TransDigm Group Insiders Aligned With All Shareholders?

Since TransDigm Group has a market capitalisation of US$82b, we wouldn't expect insiders to hold a large percentage of shares. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$305m. We note that this amounts to 0.4% of the company, which may be small owing to the sheer size of TransDigm Group but it's still worth mentioning. This still shows shareholders there is a degree of alignment between management and themselves.

Does TransDigm Group Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into TransDigm Group's strong EPS growth. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. The growth and insider confidence is looked upon well and so it's worthwhile to investigate further with a view to discern the stock's true value. It is worth noting though that we have found 3 warning signs for TransDigm Group (2 are significant!) that you need to take into consideration.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of companies which have demonstrated growth backed by significant insider holdings.

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.