Do Innospec's (NASDAQ:IOSP) Earnings Warrant Your Attention?
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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.
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 Innospec (NASDAQ:IOSP). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Innospec with the means to add long-term value to shareholders.
Check out our latest analysis for Innospec
Innospec's Improving Profits
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's no surprise that some investors are more inclined to invest in profitable businesses. It's good to see that Innospec's EPS has grown from US$4.30 to US$5.22 over twelve months. There's little doubt shareholders would be happy with that 21% gain.
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. Innospec maintained stable EBIT margins over the last year, all while growing revenue 24% to US$2.0b. That's encouraging news for the company!
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
Fortunately, we've got access to analyst forecasts of Innospec's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Innospec Insiders Aligned With All Shareholders?
It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Innospec followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Indeed, they hold US$24m worth of its stock. That's a lot of money, and no small incentive to work hard. While their ownership only accounts for 1.0%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
Does Innospec Deserve A Spot On Your Watchlist?
One important encouraging feature of Innospec is that it is growing profits. If that's not enough on its own, there is also the rather notable levels of insider ownership. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Innospec is trading on a high P/E or a low P/E, relative to its industry.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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