Is Now The Time To Put Ligand Pharmaceuticals (NASDAQ:LGND) On Your Watchlist?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Ligand Pharmaceuticals (NASDAQ:LGND). 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.

View our latest analysis for Ligand Pharmaceuticals

How Fast Is Ligand Pharmaceuticals Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. To the delight of shareholders, Ligand Pharmaceuticals has achieved impressive annual EPS growth of 54%, compound, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

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. To cut to the chase Ligand Pharmaceuticals' EBIT margins dropped last year, and so did its revenue. This is less than stellar for the company.

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 we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Ligand Pharmaceuticals?

Are Ligand Pharmaceuticals Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. Ligand Pharmaceuticals followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Holding US$68m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. This should keep them focused on creating long term value for shareholders.

Does Ligand Pharmaceuticals Deserve A Spot On Your Watchlist?

Ligand Pharmaceuticals' earnings per share growth have been climbing higher at an appreciable rate. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, Ligand Pharmaceuticals is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. We don't want to rain on the parade too much, but we did also find 4 warning signs for Ligand Pharmaceuticals (1 is a bit unpleasant!) that you need to be mindful of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access 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.