Yahoo Finance With EPS Growth And More, Advanced Drainage Systems (NYSE:WMS) Makes An Interesting Case
It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Advanced Drainage Systems (NYSE:WMS). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
Check out our latest analysis for Advanced Drainage Systems
How Fast Is Advanced Drainage Systems Growing Its Earnings Per Share?
In the last three years Advanced Drainage Systems' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. Impressively, Advanced Drainage Systems' EPS catapulted from US$2.65 to US$5.34, over the last year. It's not often a company can achieve year-on-year growth of 101%. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.
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 good news is that Advanced Drainage Systems is growing revenues, and EBIT margins improved by 7.3 percentage points to 22%, over the last year. Both of which are great metrics to check off for potential growth.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Advanced Drainage Systems?
Are Advanced Drainage Systems Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$7.4b company like Advanced Drainage Systems. But we do take comfort from the fact that they are investors in the company. Given insiders own a significant chunk of shares, currently valued at US$91m, they have plenty of motivation to push the business to succeed. This would indicate that the goals of shareholders and management are one and the same.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Our quick analysis into CEO remuneration would seem to indicate they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Advanced Drainage Systems with market caps between US$4.0b and US$12b is about US$7.9m.
Advanced Drainage Systems offered total compensation worth US$6.4m to its CEO in the year to March 2022. That is actually below the median for CEO's of similarly sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add Advanced Drainage Systems To Your Watchlist?
Advanced Drainage Systems' earnings per share growth have been climbing higher at an appreciable rate. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The strong EPS improvement suggests the businesses is humming along. Big growth can make big winners, so the writing on the wall tells us that Advanced Drainage Systems is worth considering carefully. We should say that we've discovered 3 warning signs for Advanced Drainage Systems that you should be aware of before investing here.
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 free list of them here.
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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