Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
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. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Gilat Satellite Networks (NASDAQ:GILT). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Fast Is Gilat Satellite Networks Growing Its Earnings Per Share?
Over the last three years, Gilat Satellite Networks has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like a firecracker arcing through the night sky, Gilat Satellite Networks's EPS shot from US$0.18 to US$0.34, over the last year. You don't see 90% year-on-year growth like that, very often.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Gilat Satellite Networks's EBIT margins have actually improved by 3.4 percentage points in the last year, to reach 8.5%, but, on the flip side, revenue was down 8.8%. That's not ideal.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Gilat Satellite Networks's balance sheet strength, before getting too excited.
Are Gilat Satellite Networks Insiders Aligned With All Shareholders?
I always like to check up on CEO compensation, because I think that reasonable pay levels, around or below the median, can be a sign that shareholder interests are well considered. For companies with market capitalizations between US$200m and US$800m, like Gilat Satellite Networks, the median CEO pay is around US$1.8m.
The Gilat Satellite Networks CEO received US$920k in compensation for the year ending December 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. 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 good governance, more generally.
Does Gilat Satellite Networks Deserve A Spot On Your Watchlist?
Gilat Satellite Networks's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. Such fast EPS growth makes me wonder if the business has hit an inflection point (and I mean the good kind.) Meanwhile, the very reasonable CEO pay reassures me a little, since it points to an absence profligacy. So Gilat Satellite Networks looks like it could be a good quality growth stock, at first glance. That's worth watching. Now, you could try to make up your mind on Gilat Satellite Networks by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
Although Gilat Satellite Networks certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.