Here's Why We Think Light & Wonder (NASDAQ:LNW) Might Deserve Your Attention Today

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Light & Wonder (NASDAQ:LNW). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for Light & Wonder

Light & Wonder's Improving Profits

In the last three years Light & Wonder's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. Impressively, Light & Wonder's EPS catapulted from US$1.17 to US$3.47, over the last year. Year on year growth of 196% is certainly a sight to behold.

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 Light & Wonder is growing revenues, and EBIT margins improved by 2.5 percentage points to 25%, over the last year. Ticking those two boxes is a good sign of growth, in our book.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

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

Are Light & Wonder Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. 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.

The good news for Light & Wonder shareholders is that no insiders reported selling shares in the last year. Add in the fact that Antonia Korsanos, the Executive Vice Chair of the company, paid US$13k for shares at around US$93.25 each. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Light & Wonder.

On top of the insider buying, it's good to see that Light & Wonder insiders have a valuable investment in the business. Holding US$53m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. This should keep them focused on creating long term value for shareholders.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. The cherry on top is that the CEO, Matt Wilson is paid comparatively modestly to CEOs at similar sized companies. The median total compensation for CEOs of companies similar in size to Light & Wonder, with market caps between US$4.0b and US$12b, is around US$7.7m.

The Light & Wonder CEO received US$6.7m in compensation for the year ending December 2023. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add Light & Wonder To Your Watchlist?

Light & Wonder's earnings have taken off in quite an impressive fashion. The icing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Light & Wonder deserves timely attention. However, before you get too excited we've discovered 2 warning signs for Light & Wonder (1 shouldn't be ignored!) that you should be aware of.

The good news is that Light & Wonder is not the only stock with insider buying. Here's a list of small cap, undervalued companies in the US with insider buying in the last three months!

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.