Does Cantaloupe (NASDAQ:CTLP) Deserve A Spot On Your Watchlist?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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 Cantaloupe (NASDAQ:CTLP). 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 Cantaloupe

Cantaloupe's Improving Profits

Over the last three years, Cantaloupe has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. Cantaloupe's EPS has risen over the last 12 months, growing from US$0.15 to US$0.18. There's little doubt shareholders would be happy with that 21% gain.

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. While we note Cantaloupe achieved similar EBIT margins to last year, revenue grew by a solid 11% to US$277m. That's progress.

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.

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

Are Cantaloupe Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

It's pleasing to note that insiders spent US$2.3m buying Cantaloupe shares, over the last year, without reporting any share sales whatsoever. Buying like that is a fantastic look for the company and should rouse the market in anticipation for the future. It is also worth noting that it was Independent Non-Executive Chairman Douglas Bergeron who made the biggest single purchase, worth US$2.1m, paying US$7.41 per share.

Along with the insider buying, another encouraging sign for Cantaloupe is that insiders, as a group, have a considerable shareholding. Given insiders own a significant chunk of shares, currently valued at US$65m, they have plenty of motivation to push the business to succeed. Amounting to 9.6% of the outstanding shares, indicating that insiders are also significantly impacted by the decisions they make on the behalf of the business.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Ravi Venkatesan is paid comparatively modestly to CEOs at similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Cantaloupe with market caps between US$400m and US$1.6b is about US$3.2m.

The Cantaloupe CEO received total compensation of just US$1.0m in the year to June 2024. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Cantaloupe Worth Keeping An Eye On?

One important encouraging feature of Cantaloupe is that it is growing profits. Better yet, insiders are significant shareholders, and have been buying more shares. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. Another important measure of business quality not discussed here, is return on equity (ROE). Click on this link to see how Cantaloupe shapes up to industry peers, when it comes to ROE.

The good news is that Cantaloupe 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.