If you love the growth of EPS, check out National Aluminum (NSE: NATIONALUM) before it’s too late
Like a puppy chasing its tail, some new investors often chase “the next big thing,” even if that means buying “history stocks” with no income, let alone profit. But as Warren Buffett said, “If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you are the patsy.” When buying such historical stocks, investors are all too often the fools.
Contrary to all this, I prefer to spend time on companies like National Aluminum (NSE: NATIONALUM), which not only has income, but also profits. While profit isn’t necessarily social good, it’s easy to admire a business that can consistently produce it. By comparison, loss-making companies act like a sponge for capital – but unlike such a sponge, they don’t always produce something when in a hurry.
See our latest review for National Aluminum
How fast is National Aluminum increasing its earnings per share?
As one of my mentors once told me, the stock price tracks earnings per share (EPS). Therefore, many investors like to buy stocks of companies with growing EPS. Over the past three years, National Aluminum has increased its EPS by 16% per year. It’s a good rate of growth, if it can be sustained.
A close look at growth in income and profit margins before interest and taxes (EBIT) can help inform a vision on the sustainability of recent earnings growth. The good news is that National Aluminum is increasing revenue and EBIT margins have improved 20.4 percentage points to 22% over the past year. Checking those two boxes is a good sign of growth in my book.
The graph below shows how the company’s bottom line has progressed over time. For more details, click on the image.
While it’s always good to see increased profits, you should always remember that a low balance sheet could come back to bite you. So check out the strength of National Aluminum’s balance sheet before you get too excited.
Are National Aluminum Insiders Aligned With All Shareholders?
I like that business leaders have some skin in the game, so to speak, because it increases the alignment of incentives between the people who run the business and its real owners. So it’s good to see that National Aluminum insiders have a significant amount of capital invested in the stock. To be precise, they have 2.5 billion yen of stock. This shows strong buy-in and may indicate a belief in business strategy. Although he only represents 1.4% of the business, the value of this investment is enough to show that insiders have a lot going on in the business.
It’s good to see insiders invested in the company, but are the pay levels reasonable? A brief analysis of CEO compensation suggests they are. I found that the median total compensation of CEOs of companies like National Aluminum with market caps between 150 and 481 billion yen is around 44 million yen.
The CEO of National Aluminum received total compensation of just 4.9 million yen in the year to. This is clearly well below par, so at first glance this arrangement seems generous to shareholders and indicates a culture of modest compensation. CEO compensation isn’t the most important aspect of a business to consider, but when it’s reasonable, it gives me a little more confidence that executives are looking out for the interests of shareholders. It can also be a sign of a culture of integrity, in the broad sense.
Should You Add National Aluminum To Your Watchlist?
One positive point for National Aluminum is that it increases EPS. It’s nice to see. Profit growth may be National Aluminum’s main game, but the fun not stop there. With a significant level of insider ownership and reasonable CEO compensation, a reasonable mind might conclude that this is a stock to watch. However, you should always think about the risks. Concrete example, we have spotted 1 warning sign for National Aluminum you must be aware.
You can invest in any business. But if you’d rather focus on stocks that have been the subject of insider buys, here’s a list of companies that have made insider buys in the past three months.
Please note that the insider dealing discussed in this article refers to reportable trades 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 using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.