In This Article:
The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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 Collegium Pharmaceutical (NASDAQ:COLL). 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.
See our latest analysis for Collegium Pharmaceutical
Collegium Pharmaceutical's Improving Profits
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's easy to see why many investors focus in on EPS growth. Collegium Pharmaceutical's EPS shot up from US$1.43 to US$2.15; a result that's bound to keep shareholders happy. That's a commendable gain of 50%.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. While Collegium Pharmaceutical did well to grow revenue over the last year, EBIT margins were dampened at the same time. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of Collegium Pharmaceutical's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Collegium Pharmaceutical Insiders Aligned With All Shareholders?
It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Collegium Pharmaceutical followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. To be specific, they have US$15m worth of shares. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 1.7%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.