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 completely lacks a track record of revenue and profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
So if you're like me, you might be more interested in profitable, growing companies, like Gilat Satellite Networks (NASDAQ:GILT). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Gilat Satellite Networks's Improving Profits
Over the last three years, Gilat Satellite Networks has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. Thus, it makes sense to focus on more recent growth rates, instead. Gilat Satellite Networks has grown its trailing twelve month EPS from US$0.30 to US$0.32, in the last year. That amounts to a small improvement of 6.9%.
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. Gilat Satellite Networks's EBIT margins have actually improved by 2.4 percentage points in the last year, to reach 9.4%, but, on the flip side, revenue was down 8.7%. That's not ideal.
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.
While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Gilat Satellite Networks's balance sheet strength, before getting too excited.
Are Gilat Satellite Networks Insiders Aligned With All Shareholders?
As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. For companies with market capitalizations between US$200m and US$800m, like Gilat Satellite Networks, the median CEO pay is around US$1.7m.
The Gilat Satellite Networks CEO received US$920k in compensation for the year ending December 2018. That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.
Does Gilat Satellite Networks Deserve A Spot On Your Watchlist?
As I already mentioned, Gilat Satellite Networks is a growing business, which is what I like to see. On top of that, my faith in the board of directors is strengthened by the fact of the reasonable CEO pay. So all in all I think it's worth at least considering for your watchlist. Now, you could try to make up your mind on Gilat Satellite Networks by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
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
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