Should You Be Adding Good Times Restaurants (NASDAQ:GTIM) To Your Watchlist Today?
It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
In contrast to all that, many investors prefer to focus on companies like Good Times Restaurants (NASDAQ:GTIM), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Good Times Restaurants with the means to add long-term value to shareholders.
View our latest analysis for Good Times Restaurants
How Quickly Is Good Times Restaurants Increasing Earnings Per Share?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Recognition must be given to the that Good Times Restaurants has grown EPS by 58% per year, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It was a year of stability for Good Times Restaurants as both revenue and EBIT margins remained have been flat over the past year. That's not a major concern but nor does it point to the long term growth we like to see.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Good Times Restaurants isn't a huge company, given its market capitalisation of US$37m. That makes it extra important to check on its balance sheet strength.
Are Good Times Restaurants Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
A great takeaway for shareholders is that company insiders within Good Times Restaurants have collectively spent US$34k acquiring shares in the company. While this investment may be modest, it is great considering the lack of insider selling. We also note that it was the Senior Vice President of Operations for Good Times Burgers and Frozen Custard, Donald Stack, who made the biggest single acquisition, paying US$7.3k for shares at about US$2.88 each.
It's commendable to see that insiders have been buying shares in Good Times Restaurants, but there is more evidence of shareholder friendly management. Namely, Good Times Restaurants has a very reasonable level of CEO pay. The median total compensation for CEOs of companies similar in size to Good Times Restaurants, with market caps under US$200m is around US$749k.
Good Times Restaurants offered total compensation worth US$563k to its CEO in the year to September 2022. That is actually below the median for CEO's of similarly 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 good governance, more generally.
Is Good Times Restaurants Worth Keeping An Eye On?
Good Times Restaurants' earnings have taken off in quite an impressive fashion. The company can also boast of insider buying, and reasonable remuneration for the CEO. It could be that Good Times Restaurants is at an inflection point, given the EPS growth. If these have piqued your interest, then this stock surely warrants a spot on your watchlist. We don't want to rain on the parade too much, but we did also find 2 warning signs for Good Times Restaurants (1 is significant!) that you need to be mindful of.
Keen growth investors love to see insider buying. Thankfully, Good Times Restaurants 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.
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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.
