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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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 Kronos Worldwide (NYSE:KRO). 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.
Check out our latest analysis for Kronos Worldwide
Kronos Worldwide's Earnings Per Share Are Growing
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years Kronos Worldwide grew its EPS by 14% per year. That growth rate is fairly good, assuming the company can keep it up.
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. The music to the ears of Kronos Worldwide shareholders is that EBIT margins have grown from 6.1% to 11% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential 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.
While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Kronos Worldwide's balance sheet strength, before getting too excited.
Are Kronos Worldwide Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
It's nice to see that there have been no reports of any insiders selling shares in Kronos Worldwide in the previous 12 months. So it's definitely nice that company insider Bryan Hanley bought US$6.4k worth of shares at an average price of around US$12.84. It seems that at least one insider is prepared to show the market there is potential within Kronos Worldwide.
Recent insider purchases of Kronos Worldwide stock is not the only way management has kept the interests of the general public shareholders in mind. Namely, Kronos Worldwide has a very reasonable level of CEO pay. Our analysis has discovered that the median total compensation for the CEOs of companies like Kronos Worldwide with market caps between US$1.0b and US$3.2b is about US$5.4m.
The Kronos Worldwide CEO received US$3.7m in compensation for the year ending December 2021. That is actually below the median for CEO's of similarly sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, 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.
Should You Add Kronos Worldwide To Your Watchlist?
As previously touched on, Kronos Worldwide is a growing business, which is encouraging. And that's not all. We've also seen insiders buying stock, and noted modest executive pay. If these factors aren't enough to secure Kronos Worldwide a spot on the watchlist, then it certainly warrants a closer look at the very least. What about risks? Every company has them, and we've spotted 1 warning sign for Kronos Worldwide you should know about.
The good news is that Kronos Worldwide is not the only growth stock with insider buying. Here's a list of them... 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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