With EPS Growth And More, XPEL (NASDAQ:XPEL) Makes An Interesting Case
It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
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 XPEL (NASDAQ:XPEL). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
View our latest analysis for XPEL
XPEL's Earnings Per Share Are Growing
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That means EPS growth is considered a real positive by most successful long-term investors. Recognition must be given to the that XPEL has grown EPS by 52% per year, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.
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 XPEL achieved similar EBIT margins to last year, revenue grew by a solid 33% to US$316m. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of XPEL's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are XPEL 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. XPEL followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$561m. Coming in at 27% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Looking very optimistic for investors.
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. The median total compensation for CEOs of companies similar in size to XPEL, with market caps between US$1.0b and US$3.2b, is around US$5.3m.
The XPEL CEO received total compensation of just US$1.3m in the year to December 2021. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Is XPEL Worth Keeping An Eye On?
XPEL's earnings per share have been soaring, with growth rates sky high. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The sharp increase in earnings could signal good business momentum. XPEL is certainly doing some things right and is well worth investigating. However, before you get too excited we've discovered 2 warning signs for XPEL (1 doesn't sit too well with us!) that you should be aware of.
The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.
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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