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.  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.  Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Cactus (NYSE:WHD). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

How Quickly Is Cactus Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow.  So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research.   Cactus' shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 53%.  That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.  

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.    Cactus maintained stable EBIT margins over the last year, all while growing revenue 59% to US$1.1b.  That's a real positive.  

In the chart below, you can see how the company has grown earnings and revenue, over time.  To see the actual numbers, click on the chart.

NYSE:WHD Earnings and Revenue History April 13th 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 Cactus.

Are Cactus 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 Cactus insiders have a significant amount of capital invested in the stock.     Indeed, they hold US$22m worth of its stock.  This considerable investment should help drive long-term value in the business.   Even though that's only about 0.5% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.  

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.  A brief analysis of the CEO compensation suggests they are.    Our analysis has discovered that the median total compensation for the CEOs of companies like Cactus with market caps between US$2.0b and US$6.4b is about US$6.5m.  

Cactus' CEO took home a total compensation package of US$2.9m in the year prior to December 2023.  That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders.   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 Cactus Deserve A Spot On Your Watchlist?

Cactus' earnings have taken off in quite an impressive fashion.   The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable.  The drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future.  Big growth can make big winners, so the writing on the wall tells us that Cactus is worth considering carefully.     However, before you get too excited we've discovered 1 warning sign for Cactus that you should be aware of.  

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of  companies which have demonstrated growth backed by recent insider purchases.

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.