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Do Harworth Group's (LON:HWG) Earnings Warrant Your Attention?

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily 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.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Harworth Group (LON:HWG). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Harworth Group

Harworth Group's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Who among us would not applaud Harworth Group's stratospheric annual EPS growth of 40%, compound, over the last three years? Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

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. Harworth Group shareholders can take confidence from the fact that EBIT margins are up from -5.7% to 27%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
earnings-and-revenue-history

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 Harworth Group EPS 100% free.

Are Harworth Group Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

In the last year insider at Harworth Group were both selling and buying shares; but happily, as a group they spent UK£91k more on stock, than they netted from selling it. Although I don't particularly like to see selling, the fact that they put more capital in, than they extracted, is a positive in my mind. It is also worth noting that it was Independent Non-Executive Chairman Alastair Lyons who made the biggest single purchase, worth UK£49k, paying UK£1.62 per share.

It's reassuring that Harworth Group insiders are buying the stock, but that's not the only reason to think management are fair to shareholders. Specifically, the CEO is paid quite reasonably for a company of this size. I discovered that the median total compensation for the CEOs of companies like Harworth Group with market caps between UK£320m and UK£1.3b is about UK£1.1m.

Harworth Group offered total compensation worth UK£824k to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I'd also argue reasonable pay levels attest to good decision making more generally.

Does Harworth Group Deserve A Spot On Your Watchlist?

Harworth Group's earnings have taken off like any random crypto-currency did, back in 2017. The company can also boast of insider buying, and reasonable remuneration for the CEO. The strong EPS growth suggests Harworth Group may be at an inflection point. For those chasing fast growth, then, I'd suggest to stock merits monitoring. We don't want to rain on the parade too much, but we did also find 2 warning signs for Harworth Group (1 is concerning!) that you need to be mindful of.

The good news is that Harworth Group 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.

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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