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.  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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like Harmonic (NASDAQ:HLIT), 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.

Harmonic's Improving Profits

In the last three years Harmonic'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.  Thus, it makes sense to focus on more recent growth rates, instead.    Impressively, Harmonic's EPS catapulted from US$0.27 to US$0.75, over the last year.  It's a rarity to see 180% year-on-year growth like that.  

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth.    The previous 12 months are something that Harmonic will want to put behind them after seeing a drop in EBIT margin and revenue for the period.  This is less than stellar for the company.  

You can take a look at the company's revenue and earnings growth trend, in the chart below.  To see the actual numbers, click on the chart.

NasdaqGS:HLIT Earnings and Revenue History April 15th 2024

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Harmonic?

Are Harmonic 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.  Harmonic followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group.     Indeed, they hold US$31m worth of its stock.  That shows significant buy-in, and may indicate conviction in the business strategy.   Even though that's only about 2.6% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.  

Does Harmonic Deserve A Spot On Your Watchlist?

Harmonic's earnings per share growth have been climbing higher at an appreciable rate.   That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest.  The hope is, of course, that the strong growth marks a fundamental improvement in the business economics.  So based on this quick analysis, we do think it's worth considering Harmonic for a spot on your watchlist.     It's still necessary to consider the ever-present spectre of investment risk.   We've identified 2 warning signs with Harmonic (at least 1 which is a bit unpleasant)  , and understanding these should be part of your investment process.  

Although Harmonic certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with insider buying, then check out this handpicked selection of  companies that not only boast of strong growth but have also seen recent insider buying..

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.