For newbies, it might seem like a good idea (and an exciting prospect) to buy a business that tells investors a good story, even if it lacks a history of revenue and profit altogether. But as Warren Buffett put it, “If you’ve been playing poker for half an hour and you still don’t know who the noise is, you are the noise.” When buying such historical stocks, investors are too often the fools.
So if you’re like me, you might be more interested in profitable and growing businesses like Aspen technology (NASDAQ: AZPN). While profit isn’t necessarily social good, it’s easy to admire a business that can consistently produce it. In comparison, loss-making companies act like a sponge for capital – but unlike such a sponge, they don’t always produce something when in a hurry.
See our latest review for Aspen Technology
How fast is Aspen technology developing?
The market is a short-term voting machine, but a long-term weighing machine, so the stock price eventually follows earnings per share (EPS). So it’s no surprise that I like to invest in companies with growing EPS. Over the past three years, Aspen Technology has increased its EPS by 8.1% per year. It’s a good rate of growth, if it can be sustained.
One way to recheck a business’s growth is to look at how its income and margins before interest and taxes (EBIT) have changed. Aspen Technology shareholders can rely on the fact that EBIT margins have increased from 42% to 52% and revenues are increasing. Checking those two boxes is a good sign of growth in my book.
In the graph below, you can see how the company has increased its profit and revenue over time. For more details, click on the image.
The trick, as an investor, is to find companies that go to perform well in the future, not just in the past. To that end, right now and today you can check out our visualization of consensus analysts’ forecasts for Aspen Technology’s future EPS 100% free.
Are Aspen Technology Insiders Aligned With All Shareholders?
Since Aspen Technology has a market cap of US $ 10.0 billion, we don’t expect insiders to own a large percentage of stocks. But we are reassured by the fact that they are investors in the company. To be precise, they have $ 45 million in stock. That’s a lot of money, and that’s no small incentive to work hard. Although it only represents 0.5% of the business, the value of this investment is enough to show that insiders have a lot going on in the business.
It’s good to see insiders invested in the company, but are the pay levels reasonable? Well, based on CEO pay, I would say they are indeed. For companies with market capitalizations over $ 8.0 billion, like Aspen Technology, the median CEO salary is around $ 11 million.
The CEO of Aspen Technology received US $ 7.6 million in compensation for the year ending. Sounds reasonable enough, especially considering it is below the median for companies of similar size. CEO compensation levels aren’t the most important metric for investors, but when the salary is modest, it promotes better alignment between the CEO and common shareholders. It can also be a sign of good governance, more generally.
Does Aspen Technology Deserve A Place On Your Watchlist?
A positive point for Aspen Technology is that it increases EPS. It’s nice to see. Profit growth may be Aspen Technology’s main game, but the fun not stop there. Boasting both a modest CEO salary and considerable insider ownership, I’d say this one is at least worthy of the watchlist. We don’t want to rain too much on the parade, but we also found 1 warning sign for Aspen technology of which you should be aware.
Of course, you can (sometimes) buy stocks that are not growing income and not have insiders who buy stocks. But as a growth investor, I always like to check out companies that do have these characteristics. You can access a free list of them here.
Please note that the insider dealing discussed in this article refers to reportable trades in the relevant jurisdiction.
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