The excitement of investing in a company that can turn its fortunes around is a big draw for some speculators, so even companies that have no revenue, no profit, and a long track record can find investors. But the reality is that if a company loses money every year for long enough, its investors usually take their share of those losses. Loss-making companies can act like a sponge, soaking up capital – so investors should be careful not to throw good money after bad.
In contrast, many investors prefer to focus on companies such as McMillan Shakespeare (ASX:MMS), which not only generates revenue but also profit. While profit is not the only metric to consider when investing, it is worth identifying companies that can consistently generate it.
Check out our latest analysis of McMillan Shakespeare
How fast is McMillan Shakespeare growing?
If a company can grow its earnings per share (EPS) long enough, its share price should eventually follow. Therefore, it makes sense for experienced investors to pay close attention to earnings per share when analyzing investments. It is certainly nice to see that McMillan Shakespeare has managed to grow earnings per share by 32% per year over three years. If this growth continues into the future, shareholders will have every reason to cheer.
A careful look at revenue growth and earnings before interest and tax (EBIT) margins can help assess the sustainability of recent earnings growth. Our analysis has shown that McMillan Shakespeare’s revenue from operational business has not reported all of its revenues for the last 12 months, so our analysis of margins may not reflect the underlying business. McMillan Shakespeare’s EBIT margins were relatively flat over the last year, but the company can be pleased to report a 39% increase in revenues to AU$481 million for the period. That’s progress.
The chart below shows how the company’s profit and revenue have changed over time. Click on the chart to see the actual numbers.
The trick for an investor is to find companies that will be will continue to perform well in the future, not just in the past. While there are no crystal balls, you can see our visualization of analyst consensus forecasts for McMillan Shakespeare’s future earnings per share 100% free.
Are McMillan Shakespeare insiders on the same page as all shareholders?
It is said that there is no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could cause a stir in the market. This view is based on the possibility that stock purchases signal a bullish attitude on the part of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
It’s nice to see that there have been no reports of insiders selling McMillan Shakespeare shares in the last 12 months. So it’s certainly nice that Independent Non-Executive Director Kathryn Parsons bought AU$9.7k worth of shares at an average price of around AU$19.30. It seems that at least one insider is willing to show the market that McMillan Shakespeare has potential.
In addition to the insider purchases, it is good to see that McMillan Shakespeare insiders have made a valuable investment in the company. In fact, their stake is valued at AU$72 million. This sizeable investment should help increase the long-term value of the company. These stakes represent over 6.0% of the company; visible self-interest.
While insiders appear to like to hold and accumulate shares, that’s only part of the bigger picture. That’s because McMillan Shakespeare’s CEO Rob De Luca is paid relatively modestly compared to other CEOs of companies of its size. The average total compensation for CEOs of companies similar in size to McMillan Shakespeare, with market capitalizations between AU$607 million and AU$2.4 billion, is around AU$1.6 million.
The CEO of McMillan Shakespeare received a total compensation package worth AU$1.2 million in the year to June 2023. This is actually below the average for CEOs of similarly sized companies. While the level of CEO compensation should not be the most important factor in how the company is perceived, modest compensation is positive because it suggests that the board has shareholders’ interests in mind. In general, it can be argued that reasonable pay levels are evidence of good decision-making.
Is McMillan Shakespeare worth keeping an eye on?
For growth investors, McMillan Shakespeare’s pure earnings growth rate is a bright spot in the night. Even better, insiders own a large portion of the company and one has bought even more shares. So it’s fair to say this stock deserves a place on your watch list. Before you take the next step, you should know 3 warning signs for McMillan Shakespeare that we uncovered.
There are plenty of other companies where insiders are buying up shares, so if you like McMillan Shakespeare, you’ll probably like this curated collection of companies in Australia that have an attractive valuation and have been bought by insiders over the past three months.
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.
