Yahoo Finance Does Insteel Industries (NYSE:IIIN) Deserve A Spot On Your Watchlist?
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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
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 Insteel Industries (NYSE:IIIN). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Insteel Industries with the means to add long-term value to shareholders.
See our latest analysis for Insteel Industries
Insteel Industries' Improving Profits
Insteel Industries has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. As a result, we'll zoom in on growth over the last year, instead. In impressive fashion, Insteel Industries' EPS grew from US$2.52 to US$6.45, over the previous 12 months. It's a rarity to see 156% year-on-year growth like that. That could be a sign that the business has reached a true inflection point.
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. Insteel Industries shareholders can take confidence from the fact that EBIT margins are up from 12% to 21%, 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. Click on the chart to see the exact numbers.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Insteel Industries' future profits.
Are Insteel Industries 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. So it is good to see that Insteel Industries insiders have a significant amount of capital invested in the stock. To be specific, they have US$25m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 3.9% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
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. The median total compensation for CEOs of companies similar in size to Insteel Industries, with market caps between US$400m and US$1.6b, is around US$3.9m.
Insteel Industries offered total compensation worth US$2.5m to its CEO in the year to October 2021. That is actually below the median for CEO's of similarly 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 good governance, more generally.
Is Insteel Industries Worth Keeping An Eye On?
Insteel Industries' earnings per share growth have been climbing higher at an appreciable rate. 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 sharp increase in earnings could signal good business momentum. Insteel Industries is certainly doing some things right and is well worth investigating. Even so, be aware that Insteel Industries is showing 3 warning signs in our investment analysis , and 2 of those can't be ignored...
Although Insteel Industries certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
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.
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