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 PerkinElmer (NYSE: PKI). 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 PerkinElmer
How fast is PerkinElmer increasing its earnings per share?
In a capitalist society, capital runs after profits, which means that stock prices tend to increase with earnings per share (EPS). So like the hint of a smile on a face I love, growing EPS usually makes me look twice. So you can imagine that it almost knocked me off when I realized that PerkinElmer had increased their EPS from US $ 2.64 to US $ 10.57, in a short year. While this rate of growth is unlikely to repeat itself, it does look like a breakout improvement. But the key is to discern if something deep has changed, or if it’s just a one-time boost.
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). PerkinElmer shareholders can rely on the fact that EBIT margins are up 15% to 33% and revenues are increasing. It’s great to see, on both counts.
In the graph below, you can see how the business has increased its profit and revenue over time. Click on the graph to see the exact numbers.
You don’t drive with your eyes on the rearview mirror, so this may be of more interest to you free report showing analyst forecasts for PerkinElmer’s future profits.
Are PerkinElmer Insiders Aligned With All Shareholders?
We wouldn’t expect to see insiders owning a significant percentage of a $ 21 billion company like PerkinElmer. But we are reassured by the fact that they have invested in the company. Indeed, they have invested a sparkling mountain of wealth, currently valued at US $ 182 million. This suggests to me that management will be very attentive to the interests of shareholders when making a decision!
It means a lot to see insiders investing in the company, but I wonder if the compensation policies are shareholder friendly. Well, based on CEO pay, I would say they are indeed. I’ve found that the median total compensation of CEOs of companies like PerkinElmer, with market caps over $ 8.0 billion, is around $ 11 million.
PerkinElmer offered total compensation worth $ 9.0 million to its CEO during the year to. Sounds reasonable enough, especially considering it is below the median for companies of similar size. CEO compensation isn’t the most important aspect of a business to consider, but when it’s reasonable, it gives me a little more confidence that executives are looking out for the interests of shareholders. I would also say that reasonable pay levels are a testament to good decision making more generally.
Is PerkinElmer worth watching?
PerkinElmer’s earnings took off like any random cryptocurrency, back in 2017. The icing on the cake is that the insiders own a bunch of stocks and the CEO pay really looks quite reasonable. The strong improvement in BPA suggests that companies are buzzing. PerkinElmer certainly ticks a few of my boxes, so I think that probably deserves a closer look. However, you should always think about the risks. Concrete example, we have spotted 2 warning signs for PerkinElmer you should be aware of it, and one of them doesn’t suit us very well.
While PerkinElmer 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.
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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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