The excitement of investing in a company that can turn its fortunes around is so attractive to some speculators that even companies with no revenue, no profits, and a track record of losses can manage to find investors.But as peter lynch said one wall street“Long shots almost never pay off.” Loss-making companies are always in a race against time to achieve financial sustainability, so investors in those companies may be taking more risk than they should.
So if this high-risk high-reward idea isn’t for you, you’re probably more interested in profitable, growing companies like technology one (ASX: TNE). Even if the company’s market valuation is reasonable, investors will agree that generating consistent profits will continue to provide Technology One with the means to increase long-term value for shareholders.
Check out our latest analysis for Technology One
How Fast Are Tech Stocks Growing EPS?
In general, companies with growing earnings per share (EPS) should see similar stock price trends. Therefore, there are many investors who like to buy stocks of companies with EPS growth. Shareholders will be pleased to know that Technology One’s earnings per share have grown 34% compounded annually over three years. So it’s no surprise to see the company trading at very high (past) earnings multiples.
One way to scrutinize a company’s growth is to look at changes in its revenue and earnings before interest and tax (EBIT) margins. Technology One’s EBIT margin held steady last year, while revenue rose 11 per cent to A$339 million. This is a real positive.
In the chart below, you can see how the company has grown its earnings and revenue over time. To see actual numbers, click on the graph.
You don’t look in your rearview mirror while driving, so you might be more interested in this free A report showing analyst forecasts for Technology One future profit.
Are Technology One Insiders aligned with all stakeholders?
Insider interest in a company always sparks some curiosity, and many investors look for companies where insiders put their money where their mouths are. That’s because insider buying usually signals that those closest to the company believe the stock price will do well. However, insiders are sometimes wrong, and we don’t know the exact thinking behind their acquisitions.
Technology One’s top brass are definitely in sync, having sold no shares in the past year. But the real excitement came when non-executive chairman and lead independent director Patrick Redmond O’Sullivan spent A$249,000 on shares (average price around A$10.27). Strong buying like this could be a sign of opportunity.
Insider buying aside, it’s good to see Technology One insiders making worthwhile investments in the business. We note that their sizeable stake in the company is worth A$614 million. This equates to a 14% stake in the company, making insiders powerful and aligned with other shareholders. Very inspiring.
While insiders are clearly happy to own and add to their holdings, that’s only part of the bigger picture. That’s because Technology One CEO Edward Chung’s pay is relatively low compared to other CEOs at companies of his size. The median total remuneration for chief executives of companies similar in size to Technology One, with market capitalizations between AU$3.0b and AU$9.5b, is around AU$3.5 million.
Technology One’s total remuneration for its chief executive is $2.3 million for the year to September 2022. That’s below the average for companies of a similar size, and seems pretty reasonable. CEO compensation is hardly the most important aspect for a company to consider, but if justified, it would increase confidence that leadership is looking after shareholder interests. In general, it can be argued that reasonable pay levels demonstrate good decision-making.
Is Technology Worth Watching?
If you think stock prices follow EPS, you should definitely look further into Technology One’s strong EPS growth. Even better, insiders own a significant portion of the company and have been buying even more stock. Savvy investors will want to keep a close eye on this stock. Profit growth is one thing, of course, but it’s even better if Technology One earns a high return on equity, as that should mean it can keep growing without requiring much capital. Click the link to see how it compares to the industry average.
Keen growth investors love to see insider buying. Thankfully, Technology One isn’t alone. You can view a free list of them here.
Please note that insider trading discussed in this article refers to reportable transactions in the relevant jurisdictions.
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This article by Simply Wall St is general in nature. We use only an unbiased methodology to provide reviews based on historical data and analyst forecasts, and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or your financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any of the stocks mentioned.