Do Kontoor Brands's (NYSE:KTB) Earnings Warrant Your Attention?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Kontoor Brands (NYSE:KTB). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

View our latest analysis for Kontoor Brands

Kontoor Brands's Improving Profits

Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Like a wedge-tailed eagle on the wind, Kontoor Brands's EPS soared from US$2.35 to US$3.79, in just one year. That's a commendable gain of 61%.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Kontoor Brands maintained stable EBIT margins over the last year, all while growing revenue 12% to US$2.5b. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

Fortunately, we've got access to analyst forecasts of Kontoor Brands's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Kontoor Brands Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

The first bit of good news is that no Kontoor Brands insiders reported share sales in the last twelve months. Even better, though, is that the President, Scott Baxter, bought a whopping US$532k worth of shares, paying about US$53.24 per share, on average. To me that means at least one insider thinks that the company is doing well - and they are backing that view with cash.

Along with the insider buying, another encouraging sign for Kontoor Brands is that insiders, as a group, have a considerable shareholding. To be specific, they have US$27m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 1.2% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Should You Add Kontoor Brands To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Kontoor Brands's strong EPS growth. Better still, insiders own a large chunk of the company and one has even been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. Before you take the next step you should know about the 4 warning signs for Kontoor Brands (1 is a bit unpleasant!) that we have uncovered.

As a growth investor I do like to see insider buying. But Kontoor Brands isn't the only one. You can see a a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.