Should You Be Adding Chesapeake Utilities (NYSE:CPK) To Your Watchlist Today?
Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Chesapeake Utilities (NYSE:CPK). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
View our latest analysis for Chesapeake Utilities
How Fast Is Chesapeake Utilities Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. We can see that in the last three years Chesapeake Utilities grew its EPS by 10% per year. That's a pretty good rate, if the company can sustain it.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. While we note Chesapeake Utilities achieved similar EBIT margins to last year, revenue grew by a solid 17% to US$630m. That's encouraging news for the company!
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Chesapeake Utilities' forecast profits?
Are Chesapeake Utilities Insiders Aligned With All Shareholders?
It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Chesapeake Utilities insiders have a significant amount of capital invested in the stock. To be specific, they have US$47m worth of shares. That's a lot of money, and no small incentive to work hard. While their ownership only accounts for 2.1%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, you'd argue that they are indeed. For companies with market capitalisations between US$1.0b and US$3.2b, like Chesapeake Utilities, the median CEO pay is around US$5.6m.
Chesapeake Utilities' CEO took home a total compensation package worth US$2.8m in the year leading up to December 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add Chesapeake Utilities To Your Watchlist?
One positive for Chesapeake Utilities is that it is growing EPS. That's nice to see. The fact that EPS is growing is a genuine positive for Chesapeake Utilities, but the pleasant picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, you'd argue this one is worthy of the watchlist, at least. Still, you should learn about the 2 warning signs we've spotted with Chesapeake Utilities (including 1 which shouldn't be ignored).
The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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