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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.' 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 Pro-Dex (NASDAQ:PDEX). 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.
Pro-Dex's 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. Pro-Dex's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 48%. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.
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. The good news is that Pro-Dex is growing revenues, and EBIT margins improved by 5.2 percentage points to 18%, over the last year. Ticking those two boxes is a good sign of growth, in our book.
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.
See our latest analysis for Pro-Dex
Since Pro-Dex is no giant, with a market capitalisation of US$150m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Pro-Dex Insiders Aligned With All Shareholders?
Prior to investment, it's always a good idea to check that the management team is paid reasonably. Pay levels around or below the median, can be a sign that shareholder interests are well considered. For companies with market capitalisations under US$200m, like Pro-Dex, the median CEO pay is around US$663k.
Pro-Dex offered total compensation worth US$441k to its CEO in the year to June 2024. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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. It can also be a sign of good governance, more generally.