Here's Why We Think Immersion (NASDAQ:IMMR) Is Well Worth Watching

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Immersion (NASDAQ:IMMR). 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.

Check out our latest analysis for Immersion

How Fast Is Immersion Growing Its Earnings Per Share?

Over the last three years, Immersion has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. In impressive fashion, Immersion's EPS grew from US$0.40 to US$0.95, over the previous 12 months. Year on year growth of 139% is certainly a sight to behold.

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. The good news is that Immersion is growing revenues, and EBIT margins improved by 12.8 percentage points to 63%, over the last year. 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. To see the actual numbers, click on the chart.

Immersion isn't a huge company, given its market capitalisation of US$246m. That makes it extra important to check on its balance sheet strength.

Are Immersion Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

The good news is that Immersion insiders spent a whopping US$2.6m on stock in just one year, without so much as a single sale. The shareholders within the general public should find themselves expectant and certainly hopeful, that this large outlay signals prescient optimism for the business. Zooming in, we can see that the biggest insider purchase was by Chief Strategy Officer & Director William Martin for US$624k worth of shares, at about US$5.35 per share.

On top of the insider buying, it's good to see that Immersion insiders have a valuable investment in the business. Indeed, they hold US$16m worth of its stock. This considerable investment should help drive long-term value in the business. As a percentage, this totals to 6.5% of the shares on issue for the business, an appreciable amount considering the market cap.

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, Eric Singer, is paid less than the median for similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Immersion with market caps between US$100m and US$400m is about US$1.7m.

The Immersion CEO received US$1.4m in compensation for the year ending December 2021. That is actually below the median for CEO's of similarly 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. It can also be a sign of a culture of integrity, in a broader sense.

Does Immersion Deserve A Spot On Your Watchlist?

Immersion's earnings per share growth have been climbing higher at an appreciable rate. 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 Immersion deserves timely attention. Even so, be aware that Immersion is showing 2 warning signs in our investment analysis , you should know about...

Keen growth investors love to see insider buying. Thankfully, Immersion 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.