Do Catalent's (NYSE:CTLT) Earnings Warrant Your Attention?

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In contrast to all that, I prefer to spend time on companies like Catalent (NYSE:CTLT), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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.

View our latest analysis for Catalent

Catalent's Earnings Per Share Are Growing.

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years Catalent grew its EPS by 4.5% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Catalent's EBIT margins were flat over the last year, revenue grew by a solid 6.5% to US$2.6b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Catalent's forecast profits?

Are Catalent Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

We do note that, in the last year, insiders sold -US$137.7k worth of shares. But that's far less than the US$2.6m insiders spend purchasing stock. This makes me even more interested in Catalent because it suggests that those who understand the company best, are optimistic. We also note that it was the President of Gene Therapy, Peter Buzy, who made the biggest single acquisition, paying US$2.0m for shares at about US$45.13 each.

On top of the insider buying, it's good to see that Catalent insiders have a valuable investment in the business. Given insiders own a small fortune of shares, currently valued at US$54m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.

Does Catalent Deserve A Spot On Your Watchlist?

One important encouraging feature of Catalent is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist - and arguably a research priority. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Catalent. You might benefit from giving it a glance today.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Catalent, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.