It’s only natural that many investors, especially those new to the game, prefer to buy stocks in “sexy” stocks with a good history, even if those companies are losing money. And in their study titled Who falls prey to the wolf of Wall Street? » Leuz and. al. found that it is “fairly common” for investors to lose money by participating in “pump and dump” schemes.
So if you’re like me, you might be more interested in profitable and growing businesses, like Compucom software (NSE: COMPUSOFT). Now, I’m not saying the stock is necessarily undervalued today; but I can’t help but appreciate the profitability of the business itself. Conversely, a loss-making business has yet to prove itself with profits, and eventually the sweet milk of outside capital can turn sour.
See our latest analysis for Compucom Software
Compucom Software’s earnings per share increase.
The market is a short-term voting machine, but a long-term weighing machine, so stock price eventually follows earnings per share (EPS). This makes EPS growth an attractive quality for any business. For my part, I am blown away by the fact that Compucom Software has increased EPS by 47% per year, over the last three years. Such rapid growth may well be fleeting, but like a lotus blooming from a murky pond, it brings joy to wary stock pickers.
One way to check a company‘s growth is to look at the evolution of its revenues and its earnings before interest and taxes (EBIT) margins. The good news is that Compucom Software is growing its revenue and EBIT margins have improved by 14.6 percentage points to -7.0% compared to last year. It’s great to see, on both counts.
The graph below shows how the company’s bottom line and top results have grown over time. Click on the table to see the exact numbers.
Compucom Software is not a big company, considering its market capitalization of ₹1.5 billion. It is therefore very important to check the strength of its balance sheet.
Are Compucom Software Insiders Aligned with All Shareholders?
Generally, I think it’s worth considering how much the CEO gets paid, because unreasonably high rates could be considered against the interests of shareholders. I found out that the median total compensation of CEOs of companies like Compucom Software with a market capitalization below ₹16 billion is around ₹3.0 million.
The Compucom Software CEO received just £1.6m in total compensation for the year ending. You might consider this salary to be somewhat symbolic, suggesting that the CEO doesn’t need a lot of compensation to stay motivated. CEO pay levels aren’t the most important metric for investors, but when pay is modest, it promotes better alignment between the CEO and ordinary shareholders. I would also say that reasonable levels of compensation attest to good decision-making more generally.
Does Compucom software deserve a spot on your watch list?
Compucom Software’s earnings took off like any random cryptocurrency in 2017. Such rapid EPS growth makes me wonder if the company has reached an inflection point (and I mean the right one). Meanwhile, the CEO’s very reasonable salary reassures me a bit, since it points to a profligacy of absence. While I can’t be sure without a deeper dive, it seems Compucom Software has the hallmarks of a quality company; and it would be worth watching. What about the risks? Every business has them, and we’ve spotted 4 Warning Signs for Compucom Software you should know.
You can invest in the company of your choice. But if you’d rather focus on stocks that have been insider buying, here’s a list of companies that have been insider buying over the past three months.
Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.