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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.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
In contrast to all that, many investors prefer to focus on companies like FW Thorpe (LON:TFW), which has not only revenues, but also profits. 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.
Check out our latest analysis for FW Thorpe
How Quickly Is FW Thorpe Increasing Earnings Per Share?
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. Over the last three years, FW Thorpe has grown EPS by 13% per year. That growth rate is fairly good, assuming the company can keep it up.
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. FW Thorpe shareholders can take confidence from the fact that EBIT margins are up from 14% to 17%, and revenue is growing. That's great to see, on both counts.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are FW Thorpe Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So those who are interested in FW Thorpe will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. In fact, they own 53% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. UK£237m That level of investment from insiders is nothing to sneeze at.
While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to FW Thorpe, with market caps between UK£161m and UK£642m, is around UK£822k.