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Should You Be Adding Element Solutions (NYSE:ESI) To Your Watchlist Today?

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·4 min read
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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

So if you're like me, you might be more interested in profitable, growing companies, like Element Solutions (NYSE:ESI). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for Element Solutions

How Fast Is Element Solutions Growing Its Earnings Per Share?

In the last three years Element Solutions's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like the last firework on New Year's Eve accelerating into the sky, Element Solutions's EPS shot from US$0.36 to US$0.61, over the last year. Year on year growth of 68% is certainly a sight to behold.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Element Solutions maintained stable EBIT margins over the last year, all while growing revenue 6.7% to US$2.0b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

earnings-and-revenue-history
earnings-and-revenue-history

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Element Solutions EPS 100% free.

Are Element Solutions Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Although we did see some insider selling (worth -US$36k) this was overshadowed by a mountain of buying, totalling US$5.8m in just one year. I find this encouraging because it suggests they are optimistic about the Element Solutions's future. We also note that it was the Founder & Executive Chairman, Martin Ellis Franklin, who made the biggest single acquisition, paying US$5.8m for shares at about US$11.50 each.

On top of the insider buying, it's good to see that Element Solutions insiders have a valuable investment in the business. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$380m. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Ben Gliklich, is paid less than the median for similar sized companies. For companies with market capitalizations between US$4.0b and US$12b, like Element Solutions, the median CEO pay is around US$6.5m.

The Element Solutions CEO received total compensation of just US$2.9m in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. While the level of CEO compensation isn't a huge factor in my view of the company, 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.

Is Element Solutions Worth Keeping An Eye On?

Element Solutions's earnings per share have taken off like a rocket aimed right at the moon. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Element Solutions deserves timely attention. You still need to take note of risks, for example - Element Solutions has 2 warning signs (and 1 which is concerning) we think you should know about.

As a growth investor I do like to see insider buying. But Element Solutions isn't the only one. You can see a a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.