Yahoo Finance Here's Why Kinaxis (TSE:KXS) Has Caught The Eye Of Investors
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 currently lacks a track record of revenue and profit. 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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Kinaxis (TSE:KXS). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Kinaxis with the means to add long-term value to shareholders.
See our latest analysis for Kinaxis
How Fast Is Kinaxis Growing?
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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Kinaxis has managed to grow EPS by 29% per year over three years. This has no doubt fuelled the optimism that sees the stock trading on a high multiple of earnings.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Kinaxis maintained stable EBIT margins over the last year, all while growing revenue 20% to US$445m. That's a real positive.
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.
Fortunately, we've got access to analyst forecasts of Kinaxis' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Kinaxis Insiders Aligned With All Shareholders?
It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Kinaxis insiders have a significant amount of capital invested in the stock. To be specific, they have US$53m worth of shares. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 1.2%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
Should You Add Kinaxis To Your Watchlist?
You can't deny that Kinaxis has grown its earnings per share at a very impressive rate. That's attractive. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Kinaxis that you should be aware of.
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Canadian companies which have demonstrated growth backed by significant insider holdings.
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.