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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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
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 Jazz Pharmaceuticals (NASDAQ:JAZZ). 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.
See our latest analysis for Jazz Pharmaceuticals
How Fast Is Jazz Pharmaceuticals Growing Its Earnings Per Share?
In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. Which is why EPS growth is looked upon so favourably. Commendations have to be given in seeing that Jazz Pharmaceuticals grew its EPS from US$1.26 to US$7.66, in one short year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future.
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. While we note Jazz Pharmaceuticals achieved similar EBIT margins to last year, revenue grew by a solid 5.2% to US$4.0b. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
Fortunately, we've got access to analyst forecasts of Jazz Pharmaceuticals' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Jazz Pharmaceuticals Insiders Aligned With All Shareholders?
Since Jazz Pharmaceuticals has a market capitalisation of US$7.5b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Notably, they have an enviable stake in the company, worth US$214m. Holders should find this level of insider commitment quite encouraging, since it would ensure that the leaders of the company would also experience their success, or failure, with the stock.
Should You Add Jazz Pharmaceuticals To Your Watchlist?
Jazz Pharmaceuticals' earnings per share growth have been climbing higher at an appreciable rate. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So based on this quick analysis, we do think it's worth considering Jazz Pharmaceuticals for a spot on your watchlist. Even so, be aware that Jazz Pharmaceuticals is showing 3 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...