The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in NN Group (AMS:NN). 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 Quickly Is NN Group Increasing Earnings Per Share?
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. Impressively, NN Group has grown EPS by 32% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied. EPS growth figures have also been helped by share buybacks, showing the market that the company is in a position of financial strength, allowing it to return capital to shareholders.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Our analysis has highlighted that NN Group's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. To cut to the chase NN Group's EBIT margins dropped last year, and so did its revenue. Shareholders will be hoping for a change in fortunes if they're looking for profit growth.
In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.
Fortunately, we've got access to analyst forecasts of NN Group's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are NN Group Insiders Aligned With All Shareholders?
Prior to investment, it's always a good idea to check that the management team is paid reasonably. Pay levels around or below the median, can be a sign that shareholder interests are well considered. The median total compensation for CEOs of companies similar in size to NN Group, with market caps over €7.7b, is around €3.1m.
The NN Group CEO received €2.7m in compensation for the year ending December 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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 good governance, more generally.
Does NN Group Deserve A Spot On Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into NN Group's strong EPS growth. With swiftly growing earnings, the best days may still be to come, and the modest CEO pay suggests the company is careful with cash. Based on these factors, this stock may well deserve a spot on your watchlist, or even a little further research. Before you take the next step you should know about the 3 warning signs for NN Group (2 are a bit concerning!) that we have uncovered.
The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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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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