If EPS Growth Is Important To You, McGrath RentCorp (NASDAQ:MGRC) Presents An Opportunity
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. 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like McGrath RentCorp (NASDAQ:MGRC). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide McGrath RentCorp with the means to add long-term value to shareholders.
View our latest analysis for McGrath RentCorp
McGrath RentCorp's 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. We can see that in the last three years McGrath RentCorp grew its EPS by 5.7% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
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 McGrath RentCorp achieved similar EBIT margins to last year, revenue grew by a solid 19% to US$734m. That's encouraging news for the company!
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
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 McGrath RentCorp's future EPS 100% free.
Are McGrath RentCorp Insiders Aligned With All Shareholders?
It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. So it is good to see that McGrath RentCorp insiders have a significant amount of capital invested in the stock. To be specific, they have US$14m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 0.7% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
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. Our analysis has discovered that the median total compensation for the CEOs of companies like McGrath RentCorp with market caps between US$1.0b and US$3.2b is about US$5.3m.
McGrath RentCorp offered total compensation worth US$3.3m to its CEO in the year to December 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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.
Does McGrath RentCorp Deserve A Spot On Your Watchlist?
One important encouraging feature of McGrath RentCorp is that it is growing profits. Earnings growth might be the main attraction for McGrath RentCorp, but the fun does not stop there. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Even so, be aware that McGrath RentCorp is showing 2 warning signs in our investment analysis , you should know about...
Although McGrath RentCorp 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.
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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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