With EPS Growth And More, Value Line (NASDAQ:VALU) Makes An Interesting Case

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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.

In contrast to all that, many investors prefer to focus on companies like Value Line (NASDAQ:VALU), which has not only revenues, but also profits. 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 Value Line

How Quickly Is Value Line Increasing Earnings Per Share?

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. Value Line's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 37%. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Value Line reported flat revenue and EBIT margins over the last year. That's not a major concern but nor does it point to the long term growth we like to see.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Value Line 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

It's nice to see that there have been no reports of any insiders selling shares in Value Line in the previous 12 months. So it's definitely nice that VP, Treasurer & Director Stephen Anastasio bought US$44k worth of shares at an average price of around US$73.00. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Value Line insiders own more than a third of the company. In fact, they own 91% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. And their holding is extremely valuable at the current share price, totalling US$705m. This is an incredible endorsement from them.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because on our analysis the CEO, Howard Brecher, is paid less than the median for similar sized companies. The median total compensation for CEOs of companies similar in size to Value Line, with market caps between US$400m and US$1.6b, is around US$4.0m.

The Value Line CEO received total compensation of just US$897k in the year to April 2021. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Does Value Line Deserve A Spot On Your Watchlist?

Value Line's earnings have taken off in quite an impressive fashion. To sweeten the deal, insiders have significant skin in the game with one even acquiring more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Value Line deserves timely attention. Still, you should learn about the 1 warning sign we've spotted with Value Line.

The good news is that Value Line is not the only growth stock with insider buying. Here's a list of them... 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.