Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Third Age Health Services (NZSE:TAH). 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.
Third Age Health Services' Earnings Per Share Are Growing
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Third Age Health Services has managed to grow EPS by 18% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.
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. The good news is that Third Age Health Services is growing revenues, and EBIT margins improved by 6.3 percentage points to 18%, over the last year. Ticking those two boxes is a good sign of growth, in our book.
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.
NZSE:TAH Earnings and Revenue History December 12th 2024
Third Age Health Services isn't a huge company, given its market capitalisation of NZ$23m. That makes it extra important to check on its balance sheet strength.
Are Third Age Health Services Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. 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.
It's nice to see that there have been no reports of any insiders selling shares in Third Age Health Services in the previous 12 months. So it's definitely nice that Independent Chair John Fernandes bought NZ$26k worth of shares at an average price of around NZ$1.38. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.
These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for Third Age Health Services will reveal that insiders own a significant piece of the pie. Indeed, with a collective holding of 87%, company insiders are in control and have plenty of capital behind the venture. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. Although, with Third Age Health Services being valued at NZ$23m, this is a small company we're talking about. So despite a large proportional holding, insiders only have NZ$20m worth of stock. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because Third Age Health Services' CEO, Tony Wai, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Third Age Health Services with market caps under NZ$345m is about NZ$526k.
Third Age Health Services' CEO took home a total compensation package worth NZ$447k in the year leading up to March 2024. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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 good governance, more generally.
Does Third Age Health Services Deserve A Spot On Your Watchlist?
For growth investors, Third Age Health Services' raw rate of earnings growth is a beacon in the night. Moreover, the management and board of the company hold a significant stake in the company, with one party adding to this total. Astute investors will want to keep this stock on watch. However, before you get too excited we've discovered 2 warning signs for Third Age Health Services that you should be aware of.
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.
