Should You Be Adding Tronox Holdings (NYSE:TROX) 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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Tronox Holdings (NYSE:TROX). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
View our latest analysis for Tronox Holdings
Tronox Holdings' Earnings Per Share Are 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. Recognition must be given to the that Tronox Holdings has grown EPS by 38% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. EBIT margins for Tronox Holdings remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 6.3% to US$3.7b. That's encouraging news for the company!
In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Tronox Holdings' future EPS 100% free.
Are Tronox Holdings Insiders Aligned With All Shareholders?
It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Tronox Holdings followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. To be specific, they have US$39m worth of shares. That's a lot of money, and no small incentive to work hard. Despite being just 2.0% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Should You Add Tronox Holdings To Your Watchlist?
Tronox Holdings' earnings per share growth have been climbing higher at an appreciable rate. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, Tronox Holdings is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. However, before you get too excited we've discovered 4 warning signs for Tronox Holdings (2 don't sit too well with us!) that you should be aware of.
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access 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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