Here's Why We Think NewMarket (NYSE:NEU) Is Well Worth Watching
For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
In contrast to all that, many investors prefer to focus on companies like NewMarket (NYSE:NEU), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide NewMarket with the means to add long-term value to shareholders.
Check out our latest analysis for NewMarket
NewMarket's Earnings Per Share Are Growing
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that NewMarket has managed to grow EPS by 22% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.
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. The good news is that NewMarket is growing revenues, and EBIT margins improved by 4.7 percentage points to 17%, over the last year. Both of which are great metrics to check off for potential growth.
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.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are NewMarket Insiders Aligned With All Shareholders?
It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. Shareholders will be pleased by the fact that insiders own NewMarket shares worth a considerable sum. Notably, they have an enviable stake in the company, worth US$977m. Coming in at 23% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to NewMarket, with market caps between US$2.0b and US$6.4b, is around US$6.6m.
The NewMarket CEO received total compensation of just US$2.1m in the year to December 2022. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add NewMarket To Your Watchlist?
For growth investors, NewMarket'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. This may only be a fast rundown, but the key takeaway is that NewMarket is worth keeping an eye on. It is worth noting though that we have found 1 warning sign for NewMarket that you need to take into consideration.
The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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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