If EPS Growth Is Important To You, Smart Metering Systems (LON:SMS) Presents An Opportunity
Simply Wall St
5 min read
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 Smart Metering Systems (LON:SMS). 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 Fast Is Smart Metering Systems Growing Its Earnings Per Share?
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Commendations have to be given in seeing that Smart Metering Systems grew its EPS from UK£0.015 to UK£0.055, in one short year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. Could this be a sign that the business has reached an inflection point?
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. While we note Smart Metering Systems achieved similar EBIT margins to last year, revenue grew by a solid 19% to UK£119m. That's encouraging news for the company!
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.
AIM:SMS Earnings and Revenue History March 15th 2023
Are Smart Metering Systems Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Any way you look at it Smart Metering Systems shareholders can gain quiet confidence from the fact that insiders shelled out UK£210k to buy stock, over the last year. And when you consider that there was no insider selling, you can understand why shareholders might believe that there are brighter days ahead. It is also worth noting that it was CEO & Director Timothy Mortlock who made the biggest single purchase, worth UK£100k, paying UK£7.11 per share.
On top of the insider buying, it's good to see that Smart Metering Systems insiders have a valuable investment in the business. With a whopping UK£44m worth of shares as a group, insiders have plenty riding on the company's success. This should keep them focused on creating long term value for shareholders.
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because Smart Metering Systems' CEO, Tim Mortlock, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Smart Metering Systems with market caps between UK£821m and UK£2.6b is about UK£1.8m.
The Smart Metering Systems CEO received total compensation of just UK£460k in the year to December 2021. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Should You Add Smart Metering Systems To Your Watchlist?
Smart Metering Systems' earnings per share growth have been climbing higher at an appreciable rate. What's more, insiders own a significant stake in the company and have been buying more shares. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Smart Metering Systems belongs near the top of your watchlist. Even so, be aware that Smart Metering Systems is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning...
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Smart Metering Systems, you'll probably love this freelist of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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