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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Option Care Health (NASDAQ:OPCH). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Option Care Health with the means to add long-term value to shareholders.
Option Care Health's Improving Profits
In the last three years Option Care Health's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. Option Care Health's EPS skyrocketed from US$0.97 to US$1.33, in just one year; a result that's bound to bring a smile to shareholders. That's a commendable gain of 37%.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. EBIT margins for Option Care Health remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 11% to US$4.1b. That's a real positive.
In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Option Care Health's forecast profits?
Are Option Care Health 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Although we did see some insider selling (worth US$49k) this was overshadowed by a mountain of buying, totalling US$2.0m in just one year. We find this encouraging because it suggests they are optimistic about Option Care Health'sfuture. We also note that it was the Independent Non Executive Chairman of the Board, Harry M. Kraemer, who made the biggest single acquisition, paying US$1.9m for shares at about US$34.63 each.
Along with the insider buying, another encouraging sign for Option Care Health is that insiders, as a group, have a considerable shareholding. To be specific, they have US$26m worth of shares. That's a lot of money, and no small incentive to work hard. 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.
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. The cherry on top is that the CEO, John Rademacher is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalisations between US$4.0b and US$12b, like Option Care Health, the median CEO pay is around US$7.9m.
Option Care Health offered total compensation worth US$6.8m to its CEO in the year to December 2022. That is actually below the median for CEO's of similarly sized companies. 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 good governance, more generally.
Is Option Care Health Worth Keeping An Eye On?
You can't deny that Option Care Health has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say that this stock may well deserve a spot on your watchlist. Before you take the next step you should know about the 2 warning signs for Option Care Health that we have uncovered.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Option Care Health, 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.