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Is Now The Time To Put STMicroelectronics (EPA:STM) On Your Watchlist?

Simply Wall St

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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

So if you're like me, you might be more interested in profitable, growing companies, like STMicroelectronics (EPA:STM). 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. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for STMicroelectronics

How Fast Is STMicroelectronics Growing Its Earnings Per Share?

Over the last three years, STMicroelectronics has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like the last firework on New Year's Eve accelerating into the sky, STMicroelectronics's EPS shot from US$0.52 to US$1.25, over the last year. Year on year growth of 140% is certainly a sight to behold.

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. While we note STMicroelectronics's EBIT margins were flat over the last year, revenue grew by a solid 3.6% to US$9.4b. That's a real positive.

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.

ENXTPA:STM Income Statement, July 31st 2019

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of STMicroelectronics's forecast profits?

Are STMicroelectronics Insiders Aligned With All Shareholders?

As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. I discovered that the median total compensation for the CEOs of companies like STMicroelectronics, with market caps over US$8.0b, is about US$3.7m.

The CEO of STMicroelectronics only received US$1.2m in total compensation for the year ending December 2018. That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. 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 good governance, more generally.

Does STMicroelectronics Deserve A Spot On Your Watchlist?

STMicroelectronics's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. Such fast EPS growth makes me wonder if the business has hit an inflection point (and I mean the good kind.) Meanwhile, the very reasonable CEO pay reassures me a little, since it points to an absence profligacy. So STMicroelectronics looks like it could be a good quality growth stock, at first glance. That's worth watching. Now, you could try to make up your mind on STMicroelectronics by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

Although STMicroelectronics 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.