Is Now The Time To Put F5 Networks (NASDAQ:FFIV) On Your Watchlist?

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 F5 Networks (NASDAQ:FFIV). While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for F5 Networks

F5 Networks’s Earnings Per Share Are Growing.

If you believe that markets are even vaguely efficient, then over the long term you’d expect a company’s share price to follow its earnings per share (EPS). 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 F5 Networks grew its EPS by 17% per year. That growth rate is fairly good, assuming the company can keep it up.

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. F5 Networks maintained stable EBIT margins over the last year, all while growing revenue 4.0% to US$2.2b. That’s progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

NasdaqGS:FFIV Income Statement, April 15th 2019
NasdaqGS:FFIV Income Statement, April 15th 2019

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future F5 Networks EPS 100% free.

Are F5 Networks Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$9.9b company like F5 Networks. But we are reassured by the fact they have invested in the company. Indeed, they hold US$25m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.3%, the value of that investment is enough to show insiders have plenty riding on the venture.

It’s good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I’d say they are indeed. I discovered that the median total compensation for the CEOs of companies like F5 Networks, with market caps over US$8.0b, is about US$11m.

F5 Networks offered total compensation worth US$6.9m to its CEO in the year to September 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn’t a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Is F5 Networks Worth Keeping An Eye On?

One important encouraging feature of F5 Networks is that it is growing profits. Earnings growth might be the main game for F5 Networks, but the fun does not stop there. Boasting both modest CEO pay and considerable insider ownership, I’d argue this one is worthy of the watchlist, at least. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of F5 Networks.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

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 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. Thank you for reading.