Here's Why Simpson Manufacturing (NYSE:SSD) Has Caught The Eye Of Investors
Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone 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. 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.
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 Simpson Manufacturing (NYSE:SSD). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Simpson Manufacturing with the means to add long-term value to shareholders.
See our latest analysis for Simpson Manufacturing
How Quickly Is Simpson Manufacturing Increasing Earnings Per Share?
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. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Shareholders will be happy to know that Simpson Manufacturing's EPS has grown 25% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.
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 Simpson Manufacturing achieved similar EBIT margins to last year, revenue grew by a solid 4.6% to US$2.2b. 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. Click on the chart to see the exact numbers.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Simpson Manufacturing.
Are Simpson Manufacturing Insiders Aligned With All Shareholders?
Owing to the size of Simpson Manufacturing, we wouldn't expect insiders to hold a significant proportion of the company. But we do take comfort from the fact that they are investors in the company. Indeed, they hold US$35m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.4% 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? Our quick analysis into CEO remuneration would seem to indicate they are. For companies with market capitalisations between US$4.0b and US$12b, like Simpson Manufacturing, the median CEO pay is around US$7.8m.
Simpson Manufacturing's CEO took home a total compensation package of US$2.8m in the year prior to December 2022. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add Simpson Manufacturing To Your Watchlist?
You can't deny that Simpson Manufacturing has grown its earnings per share at a very impressive rate. That's attractive. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. This may only be a fast rundown, but the key takeaway is that Simpson Manufacturing is worth keeping an eye on. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Simpson Manufacturing. You might benefit from giving it a glance today.
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.
