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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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Pegasystems (NASDAQ:PEGA). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Pegasystems with the means to add long-term value to shareholders.
See our latest analysis for Pegasystems
Pegasystems' Improving Profits
Over the last three years, Pegasystems has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. Pegasystems' EPS shot up from US$0.82 to US$1.15; a result that's bound to keep shareholders happy. That's a commendable gain of 42%.
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. Pegasystems shareholders can take confidence from the fact that EBIT margins are up from 7.2% to 11%, and revenue is growing. 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. For finer detail, click on the image.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Pegasystems' forecast profits?
Are Pegasystems Insiders Aligned With All Shareholders?
Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So those who are interested in Pegasystems will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Actually, with 47% of the company to their names, insiders are profoundly invested in the business. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. This is an incredible endorsement from them.