Should You Be Adding Bright Horizons Family Solutions (NYSE:BFAM) To Your Watchlist 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Bright Horizons Family Solutions (NYSE:BFAM). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

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Bright Horizons Family Solutions' Earnings Per Share Are 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. Shareholders will be happy to know that Bright Horizons Family Solutions' EPS has grown 28% each year, compound, over three years. This has no doubt fuelled the optimism that sees the stock trading on a high multiple of earnings.

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. Bright Horizons Family Solutions shareholders can take confidence from the fact that EBIT margins are up from 6.6% to 10%, and revenue is growing. 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.

See our latest analysis for Bright Horizons Family Solutions

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

Are Bright Horizons Family Solutions Insiders Aligned With All Shareholders?

Since Bright Horizons Family Solutions has a market capitalisation of US$7.2b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. With a whopping US$56m worth of shares as a group, insiders have plenty riding on the company's success. This should keep them focused on creating long term value for shareholders.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Bright Horizons Family Solutions with market caps between US$4.0b and US$12b is about US$8.1m.

Bright Horizons Family Solutions' CEO took home a total compensation package worth US$4.9m in the year leading up to December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Does Bright Horizons Family Solutions Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Bright Horizons Family Solutions' strong EPS growth. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. Everyone has their own preferences when it comes to investing but it definitely makes Bright Horizons Family Solutions look rather interesting indeed. What about risks? Every company has them, and we've spotted 2 warning signs for Bright Horizons Family Solutions you should know about.

Although Bright Horizons Family Solutions certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of companies that not only boast of strong growth but have strong insider backing.

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.