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Here's Why We Think Zynex (NASDAQ:ZYXI) Is Well Worth Watching

Simply Wall St

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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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 Zynex (NASDAQ:ZYXI). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for Zynex

Zynex's Improving Profits

In the last three years Zynex's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. It's good to see that Zynex's EPS have grown from US$0.28 to US$0.31 over twelve months. I doubt many would complain about that 12% gain.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While Zynex did well to grow revenue over the last year, EBIT margins were dampened at the same time. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

NasdaqCM:ZYXI Income Statement, July 19th 2019

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 Zynex's future profits.

Are Zynex Insiders Aligned With All Shareholders?

Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So we're pleased to report that Zynex insiders own a meaningful share of the business. In fact, they own 52% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term - something I like to see. With that sort of holding, insiders have about US$123m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Does Zynex Deserve A Spot On Your Watchlist?

As I already mentioned, Zynex is a growing business, which is what I like to see. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. Now, you could try to make up your mind on Zynex by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like 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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.