Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks ' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
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 iRay Technology (SHSE:688301). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide iRay Technology with the means to add long-term value to shareholders.
See our latest analysis for iRay Technology
iRay Technology's Improving Profits
In the last three years iRay Technology's 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. As a result, we'll zoom in on growth over the last year, instead. Impressively, iRay Technology's EPS catapulted from CN¥4.17 to CN¥7.04, over the last year. It's a rarity to see 69% year-on-year growth like that. The best case scenario? That the business has hit a true inflection point.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Not all of iRay Technology's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. iRay Technology shareholders can take confidence from the fact that EBIT margins are up from 31% to 33%, and revenue is growing. 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. To see the actual numbers, click on the chart.SHSE:688301 Earnings and Revenue History July 29th 2022
Fortunately, we've got access to analyst forecasts of iRay Technology's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are iRay Technology Insiders Aligned With All Shareholders?
Prior to investment, it's always a good idea to check that the management team is paid reasonably. Pay levels around or below the median, can be a sign that shareholder interests are well considered. For companies with market capitalisations between CN¥27b and CN¥81b, like iRay Technology, the median CEO pay is around CN¥1.8m.
iRay Technology's CEO took home a total compensation package worth CN¥1.5m in the year leading up to December 2021. That is actually below the median for CEO's of similarly 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 iRay Technology Deserve A Spot On Your Watchlist?
iRay Technology's earnings per share growth have been climbing higher at an appreciable rate. With increasing profits, its seems likely the business has a rosy future; and it may have hit an inflection point. At the same time the reasonable CEO compensation reflects well on the board of directors. It will definitely require further research to be sure, but it does seem that iRay Technology has the hallmarks of a quality business; and that would make it well worth watching. Even so, be aware that iRay Technology is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious...
The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.
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.