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Do Spectris's (LON:SXS) Earnings Warrant Your Attention?

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Simply Wall St
·4 min read
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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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In contrast to all that, I prefer to spend time on companies like Spectris (LON:SXS), 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. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

Check out our latest analysis for Spectris

How Fast Is Spectris Growing Its Earnings Per Share?

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. It is therefore awe-striking that Spectris's EPS went from UK£0.42 to UK£1.86 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement.

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 Spectris may have maintained EBIT margins over the last year, revenue has fallen. And that does make me a little more cautious of the stock.

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.

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 Spectris's forecast profits?

Are Spectris Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The good news for Spectris shareholders is that no insiders reported selling shares in the last year. With that in mind, it's heartening that Andrew Heath, the CEO & Executive Director of the company, paid UK£25k for shares at around UK£22.98 each.

I do like that insiders have been buying shares in Spectris, but there is more evidence of shareholder friendly management. Specifically, the CEO is paid quite reasonably for a company of this size. I discovered that the median total compensation for the CEOs of companies like Spectris with market caps between UK£1.5b and UK£4.8b is about UK£1.5m.

The Spectris CEO received UK£1.2m in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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 Spectris Deserve A Spot On Your Watchlist?

Spectris's earnings have taken off like any random crypto-currency did, back in 2017. The company can also boast of insider buying, and reasonable remuneration for the CEO. The strong EPS growth suggests Spectris may be at an inflection point. For those chasing fast growth, then, I'd suggest to stock merits monitoring. What about risks? Every company has them, and we've spotted 1 warning sign for Spectris you should know about.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Spectris, you'll probably love this free list of growing companies that insiders are buying.

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.