Here's Why We Think Urban Outfitters (NASDAQ:URBN) Is Well Worth Watching

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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 Urban Outfitters (NASDAQ:URBN). 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.

View our latest analysis for Urban Outfitters

How Fast Is Urban Outfitters Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Urban Outfitters managed to grow EPS by 5.6% per year, over three years. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.

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. EBIT margins for Urban Outfitters remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 6.9% to US$5.4b. That's encouraging news for the company!

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.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Urban Outfitters' future profits.

Are Urban Outfitters Insiders Aligned With All Shareholders?

Owing to the size of Urban Outfitters, we wouldn't expect insiders to hold a significant proportion of the company. But we do take comfort from the fact that they are investors in the company. Notably, they have an enviable stake in the company, worth US$1.4b. This totals to 28% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. Looking very optimistic for investors.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to Urban Outfitters, with market caps between US$4.0b and US$12b, is around US$8.0m.

Urban Outfitters' CEO took home a total compensation package of US$1.0m in the year prior to January 2024. First impressions seem to indicate a compensation policy that is favourable to shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Does Urban Outfitters Deserve A Spot On Your Watchlist?

One positive for Urban Outfitters is that it is growing EPS. That's nice to see. The growth of EPS may be the eye-catching headline for Urban Outfitters, but there's more to bring joy for shareholders. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Now, you could try to make up your mind on Urban Outfitters by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

Although Urban Outfitters 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.