Does Clearfield (NASDAQ:CLFD) Deserve A Spot On Your Watchlist?
It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In contrast to all that, I prefer to spend time on companies like Clearfield (NASDAQ:CLFD), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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.
View our latest analysis for Clearfield
How Fast Is Clearfield Growing Its Earnings Per Share?
In the last three years Clearfield's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like a firecracker arcing through the night sky, Clearfield's EPS shot from US$0.45 to US$1.16, over the last year. Year on year growth of 155% is certainly a sight to behold. That could be a sign that the business has reached a true inflection point.
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. The good news is that Clearfield is growing revenues, and EBIT margins improved by 8.2 percentage points to 16%, over the last year. That's great to see, on both counts.
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 we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Clearfield?
Are Clearfield Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own Clearfield shares worth a considerable sum. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$107m. That equates to 17% of the company, making insiders powerful and aligned with other shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations between US$400m and US$1.6b, like Clearfield, the median CEO pay is around US$2.3m.
The Clearfield CEO received total compensation of just US$822k in the year to . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.
Is Clearfield Worth Keeping An Eye On?
Clearfield's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The strong EPS improvement suggests the businesses is humming along. Big growth can make big winners, so I do think Clearfield is worth considering carefully. Even so, be aware that Clearfield is showing 2 warning signs in our investment analysis , you should know about...
Although Clearfield 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.
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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