I Ran A Stock Scan For Earnings Growth And Lumentum Holdings (NASDAQ:LITE) Passed With Ease

By
Simply Wall St
Published
January 11, 2022
NasdaqGS:LITE
Source: Shutterstock

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In contrast to all that, I prefer to spend time on companies like Lumentum Holdings (NASDAQ:LITE), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for Lumentum Holdings

How Fast Is Lumentum Holdings Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. Lumentum Holdings managed to grow EPS by 9.4% per year, over three years. That's a pretty good rate, if the company can sustain it.

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. The good news is that Lumentum Holdings is growing revenues, and EBIT margins improved by 3.0 percentage points to 20%, over the last year. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NasdaqGS:LITE Earnings and Revenue History January 11th 2022

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Lumentum Holdings?

Are Lumentum Holdings Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$7.7b company like Lumentum Holdings. But we do take comfort from the fact that they are investors in the company. Given insiders own a small fortune of shares, currently valued at US$57m, they have plenty of motivation to push the business to succeed. That's certainly enough to make me think that management will be very focussed on long term growth.

Does Lumentum Holdings Deserve A Spot On Your Watchlist?

One positive for Lumentum Holdings is that it is growing EPS. That's nice to see. If that's not enough on its own, there is also the rather notable levels of insider ownership. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. We should say that we've discovered 1 warning sign for Lumentum Holdings that you should be aware of before investing here.

Although Lumentum Holdings 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.

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