Does Option Care Health (NASDAQ:OPCH) Deserve A Spot On Your Watchlist?
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.
In contrast to all that, many investors prefer to focus on companies like Option Care Health (NASDAQ:OPCH), which has not only revenues, but also profits. While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
See our latest analysis for Option Care Health
Option Care Health's Improving Profits
In the last three years Option Care Health's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. Option Care Health's EPS skyrocketed from US$0.99 to US$1.45, in just one year; a result that's bound to bring a smile to shareholders. That's a fantastic gain of 47%.
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. While we note Option Care Health achieved similar EBIT margins to last year, revenue grew by a solid 9.4% to US$4.2b. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of Option Care Health's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Option Care Health 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, small purchases are not always indicative of conviction, and insiders don't always get it right.
We do note that, in the last year, insiders sold US$49k worth of shares. But that's far less than the US$2.1m insiders spent purchasing stock. We find this encouraging because it suggests they are optimistic about Option Care Health'sfuture. Zooming in, we can see that the biggest insider purchase was by Independent Non Executive Chairman of the Board Harry M. Kraemer for US$1.9m worth of shares, at about US$34.63 per share.
The good news, alongside the insider buying, for Option Care Health bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$25m worth of its stock. This considerable investment should help drive long-term value in the business. Despite being just 0.4% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, John Rademacher is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalisations between US$4.0b and US$12b, like Option Care Health, the median CEO pay is around US$7.7m.
The Option Care Health CEO received US$6.8m in compensation for the year ending December 2022. That comes in below the average for similar sized companies and seems pretty reasonable. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add Option Care Health To Your Watchlist?
For growth investors, Option Care Health's raw rate of earnings growth is a beacon in the night. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. These things considered, this is one stock worth watching. Even so, be aware that Option Care Health is showing 3 warning signs in our investment analysis , and 1 of those is a bit concerning...
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Option Care Health, you'll probably love this curated collection of companies in the US that have witnessed growth alongside insider buying in the last three months.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
