Do Lancaster Colony's (NASDAQ:LANC) 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 currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 Lancaster Colony (NASDAQ:LANC). 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.

Check out our latest analysis for Lancaster Colony

How Fast Is Lancaster Colony Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That makes EPS growth an attractive quality for any company. We can see that in the last three years Lancaster Colony grew its EPS by 5.3% per year. This may not be setting the world alight, but it does show that EPS is on the upwards trend.

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. While revenue is looking a bit flat, the good news is EBIT margins improved by 2.1 percentage points to 12%, in the last twelve months. Which is a great look for the company.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Lancaster Colony's future EPS 100% free.

Are Lancaster Colony Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

While Lancaster Colony insiders did net US$233k selling stock over the last year, they invested US$522k, a much higher figure. An optimistic sign for those with Lancaster Colony in their watchlist. Zooming in, we can see that the biggest insider purchase was by Independent Director Elliot Fullen for US$507k worth of shares, at about US$169 per share.

The good news, alongside the insider buying, for Lancaster Colony bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$1.2b. This totals to 26% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. Very encouraging.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because Lancaster Colony's CEO, Dave Ciesinski, is paid at a relatively modest level when compared to other CEOs for companies of this size. For companies with market capitalisations between US$2.0b and US$6.4b, like Lancaster Colony, the median CEO pay is around US$6.7m.

Lancaster Colony's CEO took home a total compensation package worth US$5.4m in the year leading up to June 2024. That is actually below the median for CEO's of similarly sized companies. 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.

Should You Add Lancaster Colony To Your Watchlist?

As previously touched on, Lancaster Colony is a growing business, which is encouraging. 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. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Lancaster Colony is trading on a high P/E or a low P/E, relative to its industry.

Keen growth investors love to see insider activity. Thankfully, Lancaster Colony isn't the only one. You can see a a curated list of companies which have exhibited consistent growth accompanied by high insider ownership.

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.