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. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Teradyne (NASDAQ:TER). 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.
Teradyne’s Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. It certainly is nice to see that Teradyne has managed to grow EPS by 35% per year over three years. As a general rule, we’d say that if a company can keep up that sort of growth, shareholders will be smiling.
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. It seems Teradyne is pretty stable, since revenue and EBIT margins are pretty flat year on year. That’s not bad, but it doesn’t point to ongoing future growth, either.
The chart below shows how the company’s bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Teradyne’s forecast profits?.
Are Teradyne Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$7.8b company like Teradyne. But we are reassured by the fact they have invested in the company. To be specific, they have US$43m worth of shares. That’s a lot of money, and no small incentive to work hard. Despite being just 0.6%, the value of that investment is enough to show insiders have plenty riding on the venture.
Does Teradyne Deserve A Spot On Your Watchlist?
For growth investors like me, Teradyne’s raw rate of earnings growth is a beacon in the night. I think that EPS growth is something to boast of, and it doesn’t surprise me that insiders are holding on to a considerable chunk of shares. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. Now, you could try to make up your mind on Teradyne 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 Teradyne certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you’re looking for.Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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.
If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.