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 the reality is that when a business loses money every year, for long enough, its investors will usually take their share of those losses.
In the age of investing in the blue sky of tech stocks, my choice may seem old-fashioned; I always prefer profitable businesses like Goal (ASX: OCL). While profit isn’t necessarily social good, it’s easy to admire a business that can consistently produce it. While a well-funded business can suffer losses for years, unless its owners have an endless appetite to subsidize the customer, it will eventually have to generate a profit, or else take its last breath.
Check out our latest analysis for Objective
How fast is Objective increasing earnings per share?
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. It’s certainly nice to see that Objective has managed to increase its EPS by 29% per year over three years. It is therefore not surprising to see the company trading at a very high multiple of its (past) profits.
I like to see revenue growth as an indication that growth is sustainable, and I look for a high profit margin before interest and taxes (EBIT) to indicate a competitive gap (although some low-margin companies also have ditches). Objective has maintained stable EBIT margins over the past year, while increasing revenue by 36% to AU $ 95 million. It’s really positive.
The graph below shows how the company’s bottom line has progressed over time. Click on the graph to see the exact numbers.
While it is always good to see increased profits, you should always remember that a low balance sheet could come back to bite. So check the strength of Objectif’s track record, before you get too excited.
Are objective insiders aligned with all shareholders?
I feel more secure owning shares in a company if insiders also own shares, thereby aligning our interests more closely. So it is good to see that Objective insiders have a significant amount of capital invested in the stock. To be precise, they have shares worth AU $ 25 million. This shows strong buy-in and may indicate a belief in business strategy. Although he only represents 1.2% of the business, the value of this investment is enough to show that insiders have a lot going on in the business.
It means a lot to see insiders investing in the company, but I wonder if the compensation policies are shareholder friendly. A brief analysis of CEO compensation suggests they are. I found that the median total compensation for CEOs of companies like Objective with market caps between A $ 1.4 billion and A $ 4.4 billion is around A $ 1.9 million.
The CEO of Objective received total compensation of only AU $ 303,000 in the year to. It sounds like modest compensation to me, and may suggest a certain respect for the interests of shareholders. 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 a culture of integrity, in the broad sense.
Does Objective deserve a spot on your watchlist?
You cannot deny that Objective has increased its earnings per share at a very impressive rate. It is attractive. If that’s not enough, also consider that the CEO’s compensation is quite reasonable and that insiders are well invested alongside other shareholders. Everyone has their own tastes, but I think all of this makes Objective quite interesting. Another important measure of business quality that is not discussed here is return on equity (ROE). Click on this link to see how Objective stacks up against its industry peers when it comes to ROE.
While Objectif certainly looks good to me, I would like more insiders to buy stocks. If you also like to see insiders buy, then this free list of growing companies that insiders are buying, might be exactly what you are looking for.
Please note that the insider trading discussed in this article refers to reportable trades in the relevant jurisdiction.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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