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.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like AFT Pharmaceuticals (NZSE:AFT). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide AFT Pharmaceuticals with the means to add long-term value to shareholders.
How Quickly Is AFT Pharmaceuticals Increasing Earnings Per Share?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Recognition must be given to the that AFT Pharmaceuticals has grown EPS by 41% per year, over the last three years. 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 music to the ears of AFT Pharmaceuticals shareholders is that EBIT margins have grown from 9.5% to 16% 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.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
NZSE:AFT Earnings and Revenue History July 15th 2022
Are AFT 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
With strong conviction, AFT Pharmaceuticals insiders have stood united by refusing to sell shares over the last year. But the real excitement comes from the NZ$237k that Independent Director Jon Lamb spent buying shares (at an average price of about NZ$4.26). Strong buying like that could be a sign of opportunity.
These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for AFT Pharmaceuticals will reveal that insiders own a significant piece of the pie. To be exact, company insiders hold 70% of the company, so their decisions have a significant impact on their investments. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. In terms of absolute value, insiders have NZ$283m invested in the business, at the current share price. So there's plenty there to keep them focused!
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because on our analysis the CEO, Hartley Atkinson, is paid less than the median for similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like AFT Pharmaceuticals with market caps between NZ$162m and NZ$649m is about NZ$1.1m.
The AFT Pharmaceuticals CEO received NZ$840k in compensation for the year ending March 2022. That is actually below the median for CEO's of similarly 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 a culture of integrity, in a broader sense.
Is AFT Pharmaceuticals Worth Keeping An Eye On?
AFT Pharmaceuticals' earnings per share have been soaring, with growth rates sky high. The cherry on top is that insiders own a bunch of shares, and one has been buying more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe AFT Pharmaceuticals deserves timely attention. However, before you get too excited we've discovered 2 warning signs for AFT Pharmaceuticals that you should be aware of.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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