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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like TSS (NASDAQ:TSSI). 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.
Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. So a growing EPS generally brings attention to a company in the eyes of prospective investors. It is awe-striking that TSS' EPS went from US$0.0034 to US$0.25 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement. This could point to the business hitting a point of inflection.
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. The good news is that TSS is growing revenues, and EBIT margins improved by 2.5 percentage points to 5.7%, over the last year. That's great to see, on both counts.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
NasdaqCM:TSSI Earnings and Revenue History March 31st 2025
Since TSS is no giant, with a market capitalisation of US$200m, you should definitely check its cash and debtbefore getting too excited about its prospects.
Are TSS Insiders Aligned With All Shareholders?
It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. Shareholders will be pleased by the fact that insiders own TSS shares worth a considerable sum. Holding US$60m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. That holding amounts to 30% of the stock on issue, thus making insiders influential owners of the business and aligned with the interests of shareholders.
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. A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to TSS, with market caps between US$100m and US$400m, is around US$1.5m.
TSS' CEO took home a total compensation package of US$559k in the year prior to December 2023. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.
Is TSS Worth Keeping An Eye On?
TSS' earnings per share growth have been climbing higher at an appreciable rate. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future. TSS is certainly doing some things right and is well worth investigating. You still need to take note of risks, for example - TSS has 1 warning sign we think 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.
