Should You Be Adding Quanex Building Products (NYSE:NX) 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. 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.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Quanex Building Products (NYSE:NX). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Quanex Building Products with the means to add long-term value to shareholders.
See our latest analysis for Quanex Building Products
How Fast Is Quanex Building Products Growing Its Earnings Per Share?
Quanex Building Products has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. Quanex Building Products' EPS shot up from US$1.69 to US$2.19; a result that's bound to keep shareholders happy. That's a commendable gain of 30%.
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 Quanex Building Products achieved similar EBIT margins to last year, revenue grew by a solid 20% to US$1.2b. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Quanex Building Products' forecast profits?
Are Quanex Building Products Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Shareholders in Quanex Building Products will be more than happy to see insiders committing themselves to the company, spending US$682k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to be brimming with joyful expectancy. Zooming in, we can see that the biggest insider purchase was by Independent Director Jason Lippert for US$263k worth of shares, at about US$25.54 per share.
On top of the insider buying, it's good to see that Quanex Building Products insiders have a valuable investment in the business. As a matter of fact, their holding is valued at US$13m. That's a lot of money, and no small incentive to work hard. While their ownership only accounts for 1.7%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
Does Quanex Building Products Deserve A Spot On Your Watchlist?
You can't deny that Quanex Building Products has grown its earnings per share at a very impressive rate. That's attractive. Furthermore, company insiders have been adding to their significant stake in the company. These things considered, this is one stock worth watching. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Quanex Building Products is trading on a high P/E or a low P/E, relative to its industry.
Keen growth investors love to see insider buying. Thankfully, Quanex Building Products 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.
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