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Is Now The Time To Put Gardner Denver Holdings (NYSE:GDI) On Your Watchlist?

Simply Wall St

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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 completely lacks a track record of revenue and profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Gardner Denver Holdings (NYSE:GDI). 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. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for Gardner Denver Holdings

How Fast Is Gardner Denver Holdings Growing Its Earnings Per Share?

Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's no surprise that some investors are more inclined to invest in profitable businesses. It is therefore awe-striking that Gardner Denver Holdings's EPS went from US$0.35 to US$1.36 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company.

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. The good news is that Gardner Denver Holdings is growing revenues, and EBIT margins improved by 9.1 percentage points to 16%, over the last year. That's great to see, on both counts.

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.

NYSE:GDI Income Statement, July 3rd 2019

Fortunately, we've got access to analyst forecasts of Gardner Denver Holdings's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Gardner Denver Holdings Insiders Aligned With All Shareholders?

Since Gardner Denver Holdings has a market capitalization of US$7.0b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. To be specific, they have US$36m worth of shares. That's a lot of money, and no small incentive to work hard. Despite being just 0.5% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Gardner Denver Holdings with market caps between US$4.0b and US$12b is about US$6.9m.

The Gardner Denver Holdings CEO received US$5.7m in compensation for the year ending December 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Does Gardner Denver Holdings Deserve A Spot On Your Watchlist?

Gardner Denver Holdings's earnings per share have taken off like a rocket aimed right at the moon. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The sharp increase in earnings could signal good business momentum. Gardner Denver Holdings certainly ticks a few of my boxes, so I think it's probably well worth further consideration. If you think Gardner Denver Holdings might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.

Although Gardner Denver Holdings certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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.