With EPS Growth And More, Pro-Dex (NASDAQ:PDEX) Makes An Interesting Case

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.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Pro-Dex (NASDAQ:PDEX). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Pro-Dex with the means to add long-term value to shareholders.

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How Quickly Is Pro-Dex 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. Recognition must be given to the that Pro-Dex has grown EPS by 48% per year, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.

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. Pro-Dex shareholders can take confidence from the fact that EBIT margins are up from 13% to 18%, and revenue is growing. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

See our latest analysis for Pro-Dex

Since Pro-Dex is no giant, with a market capitalisation of US$129m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Pro-Dex Insiders Aligned With All Shareholders?

Prior to investment, it's always a good idea to check that the management team is paid reasonably. Pay levels around or below the median, can be a sign that shareholder interests are well considered. Our analysis has discovered that the median total compensation for the CEOs of companies like Pro-Dex with market caps under US$200m is about US$648k.

Pro-Dex's CEO took home a total compensation package worth US$441k in the year leading up to June 2024. That comes in below the average for similar sized companies and seems pretty reasonable. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Should You Add Pro-Dex To Your Watchlist?

Pro-Dex's earnings per share growth have been climbing higher at an appreciable rate. Such fast EPS growth prompts the question: has the business reached an inflection point? What's more, the fact that the CEO's compensation is quite reasonable is a sign that the company is conscious of excessive spending. It will definitely require further research to be sure, but it does seem that Pro-Dex has the hallmarks of a quality business; and that would make it well worth watching. Before you take the next step you should know about the 2 warning signs for Pro-Dex that we have uncovered.

Although Pro-Dex 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.