For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit.  But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'  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 Steelcase (NYSE:SCS). 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.

Steelcase's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow.  Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS.   Recognition must be given to the that Steelcase has grown EPS by 44% per year, over the last three years.  Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.  

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.    While Steelcase may have maintained EBIT margins over the last year, revenue has fallen.  This does not bode too well for short term growth prospects and so understanding the reasons for these results is of great importance.  

The chart below shows how the company's bottom and top lines have progressed over time.  For finer detail, click on the image.

NYSE:SCS Earnings and Revenue History April 11th 2024

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Steelcase.

Are Steelcase Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market.  So it is good to see that Steelcase insiders have a significant amount of capital invested in the stock.     Notably, they have an enviable stake in the company, worth US$318m.   This totals to 22% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders.  Very encouraging.  

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 Steelcase with market caps between US$1.0b and US$3.2b is about US$5.2m.  

Steelcase's CEO took home a total compensation package worth US$4.2m in the year leading up to February 2023.  That seems pretty reasonable, especially given it's below the median for similar 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.

Does Steelcase Deserve A Spot On Your Watchlist?

Steelcase's earnings per share have been soaring, with growth rates sky high.   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 drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future.  Steelcase certainly ticks a few boxes, so we think it's probably well worth further consideration.     Before you take the next step you should know about the 1 warning sign for Steelcase that we have uncovered.  

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.

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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.