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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
So if you're like me, you might be more interested in profitable, growing companies, like eGain (NASDAQ:EGAN). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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.
eGain's Improving Profits
In the last three years eGain'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. Thus, it makes sense to focus on more recent growth rates, instead. Like a falcon taking flight, eGain's EPS soared from US$0.16 to US$0.26, over the last year. That's a impressive gain of 60%.
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. eGain shareholders can take confidence from the fact that EBIT margins are up from 8.5% to 12%, and revenue is growing. That's great to see, on both counts.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for eGain?
Are eGain Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that eGain insiders have a significant amount of capital invested in the stock. Notably, they have an enormous stake in the company, worth US$118m. That equates to 32% of the company, making insiders powerful and aligned with other shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations between US$200m and US$800m, like eGain, the median CEO pay is around US$1.7m.
The eGain CEO received total compensation of just US$287k in the year to . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.
Is eGain Worth Keeping An Eye On?
For growth investors like me, eGain's raw rate of earnings growth is a beacon in the night. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. Each to their own, but I think all this makes eGain look rather interesting indeed. Before you take the next step you should know about the 1 warning sign for eGain that we have uncovered.
Although eGain certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
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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