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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Ironwood Pharmaceuticals (NASDAQ:IRWD). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Fast Is Ironwood Pharmaceuticals Growing Its Earnings Per Share?
In the last three years Ironwood Pharmaceuticals's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like a firecracker arcing through the night sky, Ironwood Pharmaceuticals's EPS shot from US$0.38 to US$0.67, over the last year. You don't see 75% year-on-year growth like that, very often.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Unfortunately, Ironwood Pharmaceuticals's revenue dropped 9.1% last year, but the silver lining is that EBIT margins improved from 29% to 41%. That's not ideal.
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. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Ironwood Pharmaceuticals EPS 100% free.
Are Ironwood Pharmaceuticals Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Ironwood Pharmaceuticals top brass are certainly in sync, not having sold any shares, over the last year. But the bigger deal is that the Independent Director, Edward Owens, paid US$137k to buy shares at an average price of US$9.14.
The good news, alongside the insider buying, for Ironwood Pharmaceuticals bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have US$48m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 2.8% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Should You Add Ironwood Pharmaceuticals To Your Watchlist?
Ironwood Pharmaceuticals's earnings per share have taken off like a rocket aimed right at the moon. The cherry on top is that insiders own a bunch of shares, and one has been buying more. Because of the potential that it has reached an inflection point, I'd suggest Ironwood Pharmaceuticals belongs on the top of your watchlist. We should say that we've discovered 1 warning sign for Ironwood Pharmaceuticals that you should be aware of before investing here.
The good news is that Ironwood Pharmaceuticals is not the only growth stock with insider buying. Here's a list of them... 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.
This article by Simply Wall St is general in nature. 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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