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Is Now The Time To Put WiseTech Global (ASX:WTC) On Your Watchlist?

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·4 min read
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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like WiseTech Global (ASX:WTC), which has not only revenues, but also profits. 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.

Check out our latest analysis for WiseTech Global

How Fast Is WiseTech Global Growing Its Earnings Per Share?

In the last three years WiseTech Global'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. Thus, it makes sense to focus on more recent growth rates, instead. Like a firecracker arcing through the night sky, WiseTech Global's EPS shot from AU$0.18 to AU$0.50, over the last year. Year on year growth of 184% is certainly a sight to behold.

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 WiseTech Global did well to grow revenue over the last year, EBIT margins were dampened at the same time. So it seems the future my hold further growth, especially if EBIT margins can stabilize.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

earnings-and-revenue-history
earnings-and-revenue-history

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

Are WiseTech Global Insiders Aligned With All Shareholders?

Since WiseTech Global has a market capitalization of AU$11b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Notably, they have an enormous stake in the company, worth AU$1.9b. That equates to 18% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations between AU$5.5b and AU$16b, like WiseTech Global, the median CEO pay is around AU$3.3m.

The CEO of WiseTech Global only received AU$1.2m in total compensation for the year ending . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. 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.

Is WiseTech Global Worth Keeping An Eye On?

WiseTech Global's earnings have taken off like any random crypto-currency did, back in 2017. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The sharp increase in earnings could signal good business momentum. Big growth can make big winners, so I do think WiseTech Global is worth considering carefully. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for WiseTech Global that you should be aware of.

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.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.