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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
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 Amkor Technology (NASDAQ:AMKR). 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.
Amkor Technology's Improving Profits
Amkor Technology has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. As a result, we'll zoom in on growth over the last year, instead. In impressive fashion, Amkor Technology's EPS grew from US$1.63 to US$2.83, over the previous 12 months. It's not often a company can achieve year-on-year growth of 74%.
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. Amkor Technology shareholders can take confidence from the fact that EBIT margins are up from 10% to 13%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are Amkor Technology Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
The US$436k worth of shares that insiders sold during the last 12 months pales in comparison to the US$137m they spent on acquiring shares in the company. This adds to the interest in Amkor Technology because it suggests that those who understand the company best, are optimistic. Zooming in, we can see that the biggest insider purchase was by Executive Chairman of the Board James Kim for US$92m worth of shares, at about US$24.68 per share.
And the insider buying isn't the only sign of alignment between shareholders and the board, since Amkor Technology insiders own more than a third of the company. In fact, they own 52% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. And their holding is extremely valuable at the current share price, totalling US$2.2b. That means they have plenty of their own capital riding on the performance of the business!
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because on our analysis the CEO, Giel Rutten, is paid less than the median for similar sized companies. For companies with market capitalisations between US$2.0b and US$6.4b, like Amkor Technology, the median CEO pay is around US$7.0m.
Amkor Technology offered total compensation worth US$3.8m to its CEO in the year to December 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Does Amkor Technology Deserve A Spot On Your Watchlist?
Amkor Technology's earnings have taken off in quite an impressive fashion. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Amkor Technology deserves timely attention. What about risks? Every company has them, and we've spotted 1 warning sign for Amkor Technology you should know about.
Keen growth investors love to see insider buying. Thankfully, Amkor Technology 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.