With EPS Growth And More, TE Connectivity (NYSE:TEL) Makes An Interesting Case
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 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like TE Connectivity (NYSE:TEL). 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.
Check out our latest analysis for TE Connectivity
TE Connectivity's Improving Profits
Over the last three years, TE Connectivity has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. To the delight of shareholders, TE Connectivity's EPS soared from US$7.05 to US$10.72, over the last year. That's a commendable gain of 52%.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. TE Connectivity reported flat revenue and EBIT margins over the last year. That's not bad, but it doesn't point to ongoing future growth, either.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
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 TE Connectivity's future EPS 100% free.
Are TE Connectivity Insiders Aligned With All Shareholders?
Owing to the size of TE Connectivity, we wouldn't expect insiders to hold a significant proportion of the company. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. Holding US$73m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. That's certainly enough to let shareholders know that management will be very focussed on long term growth.
Should You Add TE Connectivity To Your Watchlist?
For growth investors, TE Connectivity's raw rate of earnings growth is a beacon in the night. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in TE Connectivity's continuing strength. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for TE Connectivity (1 makes us a bit uncomfortable) you should be aware of.
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of companies which have demonstrated growth backed by recent insider purchases.
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.
