Here's Why We Think Parsons (NYSE:PSN) Is Well Worth Watching
Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Parsons (NYSE:PSN). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Parsons with the means to add long-term value to shareholders.
Check out our latest analysis for Parsons
How Fast Is Parsons Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Parsons managed to grow EPS by 4.2% per year, over three years. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
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. While we note Parsons achieved similar EBIT margins to last year, revenue grew by a solid 23% to US$4.8b. That's encouraging news for the company!
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Parsons' future profits.
Are Parsons Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
One shining light for Parsons is the serious outlay one insider has made to buy shares, in the last year. Specifically, the Director, George Ball, accumulated US$1.5m worth of shares at a price of US$41.50. It doesn't get much better than that, in terms of large investments from insiders.
On top of the insider buying, it's good to see that Parsons insiders have a valuable investment in the business. To be specific, they have US$41m worth of shares. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 0.7%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to 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, Carey Smith, is paid less than the median for similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Parsons with market caps between US$4.0b and US$12b is about US$7.9m.
Parsons offered total compensation worth US$7.0m to its CEO in the year to December 2022. That comes in below the average for similar sized companies and seems pretty reasonable. 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.
Does Parsons Deserve A Spot On Your Watchlist?
One important encouraging feature of Parsons is that it is growing profits. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for your watchlist - and arguably a research priority. If you think Parsons might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Parsons, 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.
