Here's Why We Think NVIDIA (NASDAQ:NVDA) Is Well Worth Watching

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. 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 NVIDIA (NASDAQ:NVDA). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide NVIDIA with the means to add long-term value to shareholders.

View our latest analysis for NVIDIA

NVIDIA's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. NVIDIA's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 41%. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While NVIDIA did well to grow revenue over the last year, EBIT margins were dampened at the same time. If EBIT margins are able to stay balanced and this revenue growth continues, then we should see brighter days ahead.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for NVIDIA's future EPS 100% free.

Are NVIDIA Insiders Aligned With All Shareholders?

Since NVIDIA has a market capitalisation of US$348b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$14b. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Does NVIDIA Deserve A Spot On Your Watchlist?

NVIDIA's 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. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. Based on the sum of its parts, we definitely think its worth watching NVIDIA very closely. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with NVIDIA , and understanding it should be part of your investment process.

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.