Here's Why We Think Monadelphous Group (ASX:MND) Is Well Worth Watching
It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Monadelphous Group (ASX:MND). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
See our latest analysis for Monadelphous Group
Monadelphous Group's Improving Profits
Even when EPS earnings per share (EPS) growth is unexceptional, company value can be created if this rate is sustained each year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Monadelphous Group's EPS has risen over the last 12 months, growing from AU$0.48 to AU$0.53. There's little doubt shareholders would be happy with that 11% gain.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. While Monadelphous Group may have maintained EBIT margins over the last year, revenue has fallen. While this may raise concerns, investors should investigate the reasoning behind this.
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 Monadelphous Group.
Are Monadelphous Group Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We note that Monadelphous Group insiders spent AU$98k on stock, over the last year; in contrast, we didn't see any selling. That paints the company in a nice light, as it signals that its leaders are feeling confident in where the company is heading.
The good news, alongside the insider buying, for Monadelphous Group bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have AU$55m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 4.1% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because on our analysis the CEO, Zoran Bebic, is paid less than the median for similar sized companies. The median total compensation for CEOs of companies similar in size to Monadelphous Group, with market caps between AU$612m and AU$2.4b, is around AU$1.6m.
Monadelphous Group offered total compensation worth AU$1.2m to its CEO in the year to June 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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 Monadelphous Group Deserve A Spot On Your Watchlist?
One important encouraging feature of Monadelphous Group is that it is growing profits. In addition, insiders have been busy adding to their sizeable holdings in the company. That makes the company a prime candidate for your watchlist - and arguably a research priority. You should always think about risks though. Case in point, we've spotted 1 warning sign for Monadelphous Group you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Monadelphous Group, you'll probably love this free list of growing companies that insiders are buying.
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.
