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

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 currently lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for Immersion

Immersion'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) outcomes. That means EPS growth is considered a real positive by most successful long-term investors. Immersion's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 47%. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While Immersion 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.

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$293m. That makes it extra important to check on its balance sheet strength.

Are Immersion Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Even though some insiders sold down their holdings, their actions speak louder than words with US$464k more invested than sold by people who know they company best. You could argue that level of buying implies genuine confidence in the business. Zooming in, we can see that the biggest insider purchase was by CEO, President & Chairperson Eric Singer for US$438k worth of shares, at about US$8.77 per share.

Along with the insider buying, another encouraging sign for Immersion is that insiders, as a group, have a considerable shareholding. To be specific, they have US$26m worth of shares. This considerable investment should help drive long-term value in the business. Those holdings account for over 8.9% of the company; visible skin in the game.

Should You Add Immersion To Your Watchlist?

Immersion's earnings have taken off in quite an impressive fashion. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been 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. However, before you get too excited we've discovered 4 warning signs for Immersion (2 shouldn't be ignored!) that you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Immersion, you'll probably love this curated collection of companies in the US that have an attractive valuation alongside insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.