Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Avantor (NYSE:AVTR). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Fast Is Avantor Growing Its Earnings Per Share?
In the last three years Avantor's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like a firecracker arcing through the night sky, Avantor's EPS shot from US$0.24 to US$0.46, over the last year. Year on year growth of 95% is certainly a sight to behold.
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. The good news is that Avantor is growing revenues, and EBIT margins improved by 3.1 percentage points to 13%, over the last year. Ticking those two boxes is a good sign of growth, in my book.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of Avantor's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Avantor Insiders Aligned With All Shareholders?
Since Avantor has a market capitalization of US$23b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$178m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
Is Avantor Worth Keeping An Eye On?
Avantor's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So to my mind Avantor is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. However, before you get too excited we've discovered 3 warning signs for Avantor (1 is a bit unpleasant!) that you should be aware of.
You can invest in 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.
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Avantor, Inc. provides products and services to customers in biopharma, healthcare, education and government, advanced technologies, and applied materials industries in the Americas, Europe, Asia, the Middle East, and Africa.
Proven track record with mediocre balance sheet.