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.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Napco Security Technologies (NASDAQ:NSSC). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Napco Security Technologies with the means to add long-term value to shareholders.

How Fast Is Napco Security Technologies Growing Its Earnings Per Share?

Over the last three years, Napco Security Technologies 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.    Outstandingly, Napco Security Technologies' EPS shot from US$0.49 to US$1.17, over the last year.  It's not often a company can achieve year-on-year growth of 142%.  

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 music to the ears of Napco Security Technologies shareholders is that EBIT margins have grown from 14% to 27% in the last 12 months and revenues are on an upwards trend as well.  Ticking those two boxes is a good sign of growth, in our book.  

You can take a look at the company's revenue and earnings growth trend, in the chart below.  Click on the chart to see the exact numbers.

NasdaqGS:NSSC Earnings and Revenue History April 24th 2024

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 Napco Security Technologies' future EPS 100% free.  

Are Napco Security Technologies Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners.  Shareholders will be pleased by the fact that insiders own Napco Security Technologies shares worth a considerable sum.     With a whopping US$80m worth of shares as a group, insiders have plenty riding on the company's success.   This would indicate that the goals of shareholders and management are one and the same.  

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable.  Well, based on the CEO pay, you'd argue that they are indeed.    Our analysis has discovered that the median total compensation for the CEOs of companies like Napco Security Technologies with market caps between US$1.0b and US$3.2b is about US$5.6m.  

The Napco Security Technologies CEO received total compensation of just US$1.3m in the year to June 2023.  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.  It can also be a sign of good governance, more generally.

Should You Add Napco Security Technologies To Your Watchlist?

Napco Security Technologies' earnings per share have been soaring, with growth rates sky high.   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.  Napco Security Technologies certainly ticks a few boxes, so we think it's probably well worth further consideration.     You should always think about risks though. Case in point, we've spotted   1 warning sign for Napco Security Technologies  you should be aware of.  

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in the US with promising growth potential and insider confidence.

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.