Many investors, especially inexperienced ones, often buy stocks in companies with a good history, even when those companies are losing money. Sometimes these stories can confuse investors and cause them to invest based on their emotions rather than the company’s strong fundamentals. A well-financed company may be losing money for years, but it must eventually turn a profit, otherwise investors will pull out and the company will wither away.
Although we are in the era of high-sky investing in technology stocks, many investors still follow a more traditional strategy. They buy shares of profitable companies such as Kitwave Group (LON:KITW). While this does not mean that the company is the best investment opportunity, profitability is a key component of the business’s success.
Check out our latest analysis for Kitwave Group
Kitwave Group increases profit
Over the last three years, Kitwave Group’s earnings per share have soared; so much so that it’s a little dishonest to use these numbers to derive long-term estimates. So we’ll focus on last year’s growth instead. Over the last year, Kitwave Group was able to increase its earnings per share from GBP0.23 to GBP0.25, a small improvement of 8.5%.
A careful look at revenue growth and earnings before interest and tax (EBIT) margins can help assess the sustainability of recent profit growth. Kitwave Group’s EBIT margins have remained relatively flat over the last year, yet the company can be pleased to report revenue growth of 13% to £624m for the period. That’s really positive.
The following chart shows how the company’s earnings and revenue have changed over time. Click on the image to get more detailed information.
Although we live in the present, there is little doubt that the future is of paramount importance when making investment decisions. Why not check out this interactive chart showing future EPS estimates for Kitwave Group?
Are the Kitwave Group insiders on the same page as all shareholders?
It’s pleasing to see company leaders putting their money on the line, so to speak, because it increases the incentives between those in charge and the true owners. Therefore, it’s good to see that Kitwave Group insiders have invested a significant amount of capital in the stock. Holding £42m worth of shares in the company is no small feat, and insiders will be committed to achieving the best outcomes for shareholders. This stake represents 19% of the shares in issue, making insiders influential owners of the company and aligning them with shareholders’ interests.
It’s good to see that insiders have invested in the company, but is the compensation appropriate? A quick analysis of CEO compensation suggests that this is the case. For companies with market capitalizations between £76m and £303m, such as Kitwave Group, the median CEO salary is around £578k.
The CEO of Kitwave Group received a total compensation package worth £314,000 in the year to October 2023. This is actually below the average for CEOs of similarly sized companies. A CEO’s pay is far from the most important aspect of a business, but when it’s appropriate, it gives a little more confidence that management has shareholders’ interests at heart. More broadly, it can also be a sign of a culture of integrity.
Should you add Kitwave Group to your watchlist?
As mentioned, Kitwave Group is a growing company, which is encouraging. Earnings growth may be the main attraction for Kitwave Group, but the fun not Enough of that. Given the modest CEO compensation and significant insider ownership, one could argue that this company deserves at least a spot on the watch list. However, one must consider the ever-present specter of investment risk. We have identified 2 warning signs with Kitwave Group, and understanding them should be part of your investment process.
While it can be worthwhile to choose stocks without growing earnings and without insider buying, for investors who value these key metrics, here is a carefully curated list of UK companies with promising growth potential and insider confidence.
Please note that the insider transactions discussed in this article are reportable transactions in the respective jurisdiction.
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
