Do EnPro Industries' (NYSE:NPO) Earnings Warrant Your Attention?
The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 EnPro Industries (NYSE:NPO). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
Check out our latest analysis for EnPro Industries
EnPro Industries' Improving Profits
Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. So for many budding investors, improving EPS is considered a good sign. It's an outstanding feat for EnPro Industries to have grown EPS from US$2.41 to US$8.79 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.
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 EnPro Industries achieved similar EBIT margins to last year, revenue grew by a solid 48% to US$1.3b. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
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 EnPro Industries' future EPS 100% free.
Are EnPro Industries 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. So it is good to see that EnPro Industries insiders have a significant amount of capital invested in the stock. As a matter of fact, their holding is valued at US$22m. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 0.9%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Our quick analysis into CEO remuneration would seem to indicate they are. Our analysis has discovered that the median total compensation for the CEOs of companies like EnPro Industries with market caps between US$1.0b and US$3.2b is about US$5.5m.
EnPro Industries' CEO took home a total compensation package of US$2.7m in the year prior to December 2021. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Is EnPro Industries Worth Keeping An Eye On?
EnPro Industries' earnings per share growth have been climbing higher at an appreciable rate. An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management. The strong EPS improvement suggests the businesses is humming along. EnPro Industries certainly ticks a few boxes, so we think it's probably well worth further consideration. However, before you get too excited we've discovered 4 warning signs for EnPro Industries (2 are concerning!) that you should be aware of.
Although EnPro Industries certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, 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.
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.
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