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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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Allied Farmers (NZSE:ALF). 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.
Check out our latest analysis for Allied Farmers
How Fast Is Allied Farmers Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Shareholders will be happy to know that Allied Farmers' EPS has grown 28% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. It's noted that Allied Farmers' revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. While Allied Farmers' EBIT margins are down, it's not all bad news as revenues are at least stable. That doesn't inspire a great deal of confidence.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
Allied Farmers isn't a huge company, given its market capitalisation of NZ$21m. That makes it extra important to check on its balance sheet strength.
Are Allied Farmers Insiders Aligned With All Shareholders?
As a general rule, it's worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. For companies with market capitalisations under NZ$317m, like Allied Farmers, the median CEO pay is around NZ$572k.
Allied Farmers offered total compensation worth NZ$500k to its CEO in the year to June 2024. That comes in below the average for similar sized companies and seems pretty reasonable. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.