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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Value Line (NASDAQ:VALU). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Value Line's 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). It's no surprise, then, that I like to invest in companies with EPS growth. Over the last three years, Value Line has grown EPS by 10% per year. That's a good rate of growth, if it can be sustained.
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. Value Line's EBIT margins have fallen over the last twelve months, but the flat revenue sends a message of stability. That doesn't inspire a great deal of confidence.
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.
Value Line isn't a huge company, given its market capitalization of US$296m. That makes it extra important to check on its balance sheet strength.
Are Value Line Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
One positive for Value Line, is that company insiders paid US$11k for shares in the last year. While this isn't much, we also note an absence of sales.
On top of the insider buying, we can also see that Value Line insiders own a large chunk of the company. In fact, they own 90% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. And their holding is extremely valuable at the current share price, totalling US$267m. Now that's what I call some serious skin in the game!
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Howard Brecher is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$100m and US$400m, like Value Line, the median CEO pay is around US$1.1m.
Value Line offered total compensation worth US$870k to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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.
Should You Add Value Line To Your Watchlist?
As I already mentioned, Value Line is a growing business, which is what I like to see. Better yet, insiders are significant shareholders, and have been buying more shares. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Value Line that you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Value Line, 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.
This article by Simply Wall St is general in nature. 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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