Here's Why We Think Innovative Solutions and Support (NASDAQ:ISSC) Is Well Worth Watching
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 Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Innovative Solutions and Support (NASDAQ:ISSC). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Check out our latest analysis for Innovative Solutions and Support
How Fast Is Innovative Solutions and Support Growing Its Earnings Per Share?
In the last three years Innovative Solutions and Support'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 wedge-tailed eagle on the wind, Innovative Solutions and Support's EPS soared from US$0.18 to US$0.28, in just one year. That's a impressive gain of 55%.
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. Innovative Solutions and Support shareholders can take confidence from the fact that EBIT margins are up from 12% to 14%, and revenue is growing. That's great to see, on both counts.
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.
Since Innovative Solutions and Support is no giant, with a market capitalization of US$117m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Innovative Solutions and Support Insiders Aligned With All Shareholders?
I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Innovative Solutions and Support insiders have a significant amount of capital invested in the stock. To be specific, they have US$37m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 32% of the company; visible skin in the game.
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 under US$200m, like Innovative Solutions and Support, the median CEO pay is around US$545k.
Innovative Solutions and Support offered total compensation worth US$408k to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.
Does Innovative Solutions and Support Deserve A Spot On Your Watchlist?
You can't deny that Innovative Solutions and Support 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 takeaway for me is that Innovative Solutions and Support is worth keeping an eye on. It is worth noting though that we have found 1 warning sign for Innovative Solutions and Support that you need to take into consideration.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.
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. 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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