For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.
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 Neuren Pharmaceuticals (ASX:NEU). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Neuren Pharmaceuticals with the means to add long-term value to shareholders.
How Fast Is Neuren Pharmaceuticals Growing Its Earnings Per Share?
In the last three years Neuren Pharmaceuticals' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. Outstandingly, Neuren Pharmaceuticals' EPS shot from AU$0.44 to AU$0.92, over the last year. It's not often a company can achieve year-on-year growth of 110%. The best case scenario? That the business has hit a true inflection point.
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 music to the ears of Neuren Pharmaceuticals shareholders is that EBIT margins have grown from 70% to 80% in the last 12 months and revenues are on an upwards trend as well. 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. For finer detail, click on the image.
ASX:NEU Earnings and Revenue History October 22nd 2024
Are Neuren Pharmaceuticals Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Belief in the company remains high for insiders as there hasn't been a single share sold by the management or company board members. But the bigger deal is that the Independent Non-Executive Director, Joe Basile, paid AU$198k to buy shares at an average price of AU$17.38. It seems at least one insider has seen potential in the company's future - and they're willing to put money on the line.
The good news, alongside the insider buying, for Neuren Pharmaceuticals bulls is that insiders (collectively) have a meaningful investment in the stock. As a matter of fact, their holding is valued at AU$55m. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 3.3% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Jon Pilcher, is paid less than the median for similar sized companies. The median total compensation for CEOs of companies similar in size to Neuren Pharmaceuticals, with market caps between AU$599m and AU$2.4b, is around AU$1.7m.
Neuren Pharmaceuticals' CEO took home a total compensation package worth AU$1.4m in the year leading up to December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. 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.
Should You Add Neuren Pharmaceuticals To Your Watchlist?
Neuren Pharmaceuticals' earnings have taken off in quite an impressive fashion. The icing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Neuren Pharmaceuticals belongs near the top of your watchlist. If you think Neuren Pharmaceuticals might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.
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.
