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 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.
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 Tower (NZSE:TWR). 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.
Over the last three years, Tower has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. Impressively, Tower's EPS catapulted from NZ$0.04 to NZ$0.091, over the last year. It's a rarity to see 129% year-on-year growth like that.
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. The good news is that Tower is growing revenues, and EBIT margins improved by 6.0 percentage points to 12%, over the last year. Both of which are great metrics to check off for potential growth.
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.
NZSE:TWR Earnings and Revenue History November 9th 2024
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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
The good news for Tower shareholders is that no insiders reported selling shares in the last year. With that in mind, it's heartening that Michael Cutter, the Independent Director of the company, paid NZ$21k for shares at around NZ$0.61 each. It seems that at least one insider is prepared to show the market there is potential within Tower.
It's commendable to see that insiders have been buying shares in Tower, but there is more evidence of shareholder friendly management. To be specific, the CEO is paid modestly when compared to company peers of the same size. For companies with market capitalisations between NZ$335m and NZ$1.3b, like Tower, the median CEO pay is around NZ$961k.
Tower's CEO took home a total compensation package worth NZ$658k in the year leading up to September 2023. That comes in below the average for similar sized companies and seems pretty reasonable. 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 Tower To Your Watchlist?
Tower's earnings have taken off in quite an impressive fashion. Better yet, we can observe insider buying and the chief executive pay looks reasonable. The strong EPS growth suggests Tower may be at an inflection point. For those attracted to fast growth, we'd suggest this stock merits monitoring. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Tower , and understanding this should be part of your investment process.
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.
