With EPS Growth And More, MHM Automation (NZSE:MHM) Is Interesting
Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like MHM Automation (NZSE:MHM). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Check out our latest analysis for MHM Automation
How Fast Is MHM Automation Growing Its Earnings Per Share?
Over the last three years, MHM Automation has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. Thus, it makes sense to focus on more recent growth rates, instead. Like the last firework on New Year's Eve accelerating into the sky, MHM Automation's EPS shot from NZ$0.017 to NZ$0.052, over the last year. You don't see 198% year-on-year growth like that, very often.
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. MHM Automation shareholders can take confidence from the fact that EBIT margins are up from 1.0% to 5.7%, and revenue is growing. That's great to see, on both counts.
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.
Since MHM Automation is no giant, with a market capitalization of NZ$45m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are MHM Automation Insiders Aligned With All Shareholders?
As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. For companies with market capitalizations under NZ$307m, like MHM Automation, the median CEO pay is around NZ$549k.
MHM Automation offered total compensation worth NZ$373k to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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 MHM Automation Worth Keeping An Eye On?
MHM Automation's earnings have taken off like any random crypto-currency did, back in 2017. With rocketing 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. So MHM Automation looks like it could be a good quality growth stock, at first glance. That's worth watching. You should always think about risks though. Case in point, we've spotted 2 warning signs for MHM Automation you should be aware of, and 1 of them shouldn't be ignored.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.
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.