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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.

In contrast to all that, many investors prefer to focus on companies like Skyline Champion (NYSE:SKY), which has not only revenues, but also profits. 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.

View our latest analysis for Skyline Champion

Skyline Champion's Improving Profits

Skyline Champion has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. Outstandingly, Skyline Champion's EPS shot from US$2.04 to US$5.67, over the last year. It's a rarity to see 178% year-on-year growth like that. The best case scenario? That the business has hit a true inflection point.

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. Skyline Champion shareholders can take confidence from the fact that EBIT margins are up from 9.2% to 18%, and revenue is growing. 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.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Skyline Champion's future EPS 100% free.

Are Skyline Champion Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Skyline Champion insiders have a significant amount of capital invested in the stock. Holding US$51m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. This should keep them focused on creating long term value for shareholders.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to Skyline Champion, with market caps between US$2.0b and US$6.4b, is around US$6.6m.

Skyline Champion's CEO took home a total compensation package worth US$5.8m in the year leading up to April 2022. That seems pretty reasonable, especially given it's below the median for similar 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.

Does Skyline Champion Deserve A Spot On Your Watchlist?

Skyline Champion's earnings per share growth have been climbing higher at an appreciable rate. An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management. The sharp increase in earnings could signal good business momentum. Skyline Champion certainly ticks a few boxes, so we think it's probably well worth further consideration. What about risks? Every company has them, and we've spotted 2 warning signs for Skyline Champion you should know about.

Although Skyline Champion certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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.