Is Now The Time To Put Hawkins (NASDAQ:HWKN) On Your Watchlist?

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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Hawkins (NASDAQ:HWKN), 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.

Check out our latest analysis for Hawkins

Hawkins' Earnings Per Share Are Growing

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. It certainly is nice to see that Hawkins has managed to grow EPS by 28% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Hawkins maintained stable EBIT margins over the last year, all while growing revenue 29% to US$775m. That's progress.

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.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Hawkins' balance sheet strength, before getting too excited.

Are Hawkins 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. 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.

Belief in the company remains high for insiders as there hasn't been a single share sold by the management or company board members. But the real excitement comes from the US$91k that Executive VP Jeffrey Oldenkamp spent buying shares (at an average price of about US$39.75). It seems at least one insider has seen potential in the company's future - and they're willing to put money on the line.

The good news, alongside the insider buying, for Hawkins bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have US$35m worth of shares. That's a lot of money, and no small incentive to work hard. Despite being just 4.3% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because Hawkins' CEO, Patrick Hawkins, is paid at a relatively modest level when compared to other CEOs for companies of this size. For companies with market capitalisations between US$400m and US$1.6b, like Hawkins, the median CEO pay is around US$4.1m.

Hawkins offered total compensation worth US$2.1m to its CEO in the year to April 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Hawkins Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Hawkins' strong EPS growth. Moreover, the management and board of the company hold a significant stake in the company, with one party adding to this total. Astute investors will want to keep this stock on watch. We should say that we've discovered 1 warning sign for Hawkins that you should be aware of before investing here.

Keen growth investors love to see insider buying. Thankfully, Hawkins isn't the only one. You can see a a free list of them here.

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.