Here's Why We Think Plexus (NASDAQ:PLXS) 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. 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 Plexus (NASDAQ:PLXS). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Plexus with the means to add long-term value to shareholders.
Check out our latest analysis for Plexus
Plexus' Earnings Per Share Are Growing
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That makes EPS growth an attractive quality for any company. Impressively, Plexus has grown EPS by 20% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.
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. Plexus maintained stable EBIT margins over the last year, all while growing revenue 27% to US$4.3b. That's progress.
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.
Fortunately, we've got access to analyst forecasts of Plexus' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Plexus Insiders Aligned With All Shareholders?
It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Plexus followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Holding US$56m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. That's certainly enough to let shareholders know that management will be very focussed on long term growth.
Should You Add Plexus To Your Watchlist?
For growth investors, Plexus' raw rate of earnings growth is a beacon in the night. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Plexus' continuing strength. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. However, before you get too excited we've discovered 1 warning sign for Plexus that you should be aware of.
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you 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.
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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.
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