Here's Why We Think Lamb Weston Holdings (NYSE:LW) Is Well Worth Watching

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.

In contrast to all that, many investors prefer to focus on companies like Lamb Weston Holdings (NYSE:LW), which has not only revenues, but also profits. 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.

See our latest analysis for Lamb Weston Holdings

How Quickly Is Lamb Weston Holdings Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. We can see that in the last three years Lamb Weston Holdings grew its EPS by 4.6% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.

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. The music to the ears of Lamb Weston Holdings shareholders is that EBIT margins have grown from 10% to 17% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

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

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 Lamb Weston Holdings' future EPS 100% free.

Are Lamb Weston Holdings Insiders Aligned With All Shareholders?

Owing to the size of Lamb Weston Holdings, we wouldn't expect insiders to hold a significant proportion of the company. But we are reassured by the fact they have invested in the company. Given insiders own a significant chunk of shares, currently valued at US$81m, they have plenty of motivation to push the business to succeed. That's certainly enough to let shareholders know that management will be very focussed on long term growth.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations over US$8.0b, like Lamb Weston Holdings, the median CEO pay is around US$12m.

Lamb Weston Holdings offered total compensation worth US$7.9m to its CEO in the year to May 2022. 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. It can also be a sign of good governance, more generally.

Should You Add Lamb Weston Holdings To Your Watchlist?

One positive for Lamb Weston Holdings is that it is growing EPS. That's nice to see. Earnings growth might be the main attraction for Lamb Weston Holdings, but the fun does not stop there. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Lamb Weston Holdings , and understanding this should be part of your investment process.

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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.