Do CML Microsystems' (LON:CML) Earnings Warrant Your Attention?
For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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 CML Microsystems (LON:CML), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
View our latest analysis for CML Microsystems
CML Microsystems' Improving Profits
CML Microsystems 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. Outstandingly, CML Microsystems' EPS shot from UK£0.14 to UK£0.27, over the last year. Year on year growth of 93% is certainly a sight to behold.
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. While we note CML Microsystems achieved similar EBIT margins to last year, revenue grew by a solid 13% to UK£21m. That's encouraging news for the company!
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for CML Microsystems?
Are CML Microsystems Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. 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.
It's nice to see that there have been no reports of any insiders selling shares in CML Microsystems in the previous 12 months. Add in the fact that Geoff Barnes, the Senior Independent Non-Executive Director of the company, paid UK£29k for shares at around UK£5.77 each. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.
On top of the insider buying, it's good to see that CML Microsystems insiders have a valuable investment in the business. As a matter of fact, their holding is valued at UK£16m. That shows significant buy-in, and may indicate conviction in the business strategy. As a percentage, this totals to 24% of the shares on issue for the business, an appreciable amount considering the market cap.
Is CML Microsystems Worth Keeping An Eye On?
CML Microsystems' earnings per share have been soaring, with growth rates sky high. The cherry on top is that insiders own a bunch of shares, and one has been buying more. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest CML Microsystems belongs near the top of your watchlist. It is worth noting though that we have found 3 warning signs for CML Microsystems that you need to take into consideration.
The good news is that CML Microsystems is not the only growth stock with insider buying. Here's a list of growth-focused companies in GB with insider buying in the last three months!
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.
