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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Innovative Solutions and Support (NASDAQ:ISSC). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
How Fast Is Innovative Solutions and Support Growing Its Earnings Per Share?
In the last three years Innovative Solutions and Support's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. Innovative Solutions and Support's EPS has risen over the last 12 months, growing from US$0.28 to US$0.32. That's a 13% gain; respectable growth in the broader scheme of things.
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. Innovative Solutions and Support shareholders can take confidence from the fact that EBIT margins are up from 14% to 25%, and revenue is growing. Both of which are great metrics to check off for potential growth.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
Since Innovative Solutions and Support is no giant, with a market capitalisation of US$147m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Innovative Solutions and Support 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. Innovative Solutions and Support followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. As a matter of fact, their holding is valued at US$30m. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 21% of the company; visible skin in the game.
While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to Innovative Solutions and Support, with market caps under US$200m is around US$773k.
The CEO of Innovative Solutions and Support only received US$306k in total compensation for the year ending September 2021. First impressions seem to indicate a compensation policy that is favourable to shareholders. 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 a culture of integrity, in a broader sense.
Does Innovative Solutions and Support Deserve A Spot On Your Watchlist?
One important encouraging feature of Innovative Solutions and Support is that it is growing profits. The growth of EPS may be the eye-catching headline for Innovative Solutions and Support, but there's more to bring joy for shareholders. Boasting both modest CEO pay and considerable insider ownership, you'd argue this one is worthy of the watchlist, at least. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Innovative Solutions and Support 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.
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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