New Zealand markets closed
  • NZX 50

    11,103.79
    -21.45 (-0.19%)
     
  • NZD/USD

    0.5608
    -0.0056 (-0.99%)
     
  • NZD/EUR

    0.5749
    -0.0030 (-0.52%)
     
  • ALL ORDS

    6,976.10
    -57.40 (-0.82%)
     
  • ASX 200

    6,762.80
    -54.70 (-0.80%)
     
  • OIL

    93.20
    +4.75 (+5.37%)
     
  • GOLD

    1,701.80
    -19.00 (-1.10%)
     
  • NASDAQ

    11,039.47
    -446.03 (-3.88%)
     
  • FTSE

    6,991.09
    -6.18 (-0.09%)
     
  • Dow Jones

    29,296.79
    -630.15 (-2.11%)
     
  • DAX

    12,273.00
    -197.78 (-1.59%)
     
  • Hang Seng

    17,740.05
    -272.10 (-1.51%)
     
  • NIKKEI 225

    27,116.11
    -195.19 (-0.71%)
     
  • NZD/JPY

    81.4760
    -0.6530 (-0.80%)
     

Here's Why We Think Frontier IP Group (LON:FIPP) Is Well Worth Watching

·4-min read

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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.

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 Frontier IP Group (LON:FIPP). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Frontier IP Group with the means to add long-term value to shareholders.

Check out our latest analysis for Frontier IP Group

Frontier IP Group's Improving Profits

Frontier IP Group 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. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, Frontier IP Group's EPS grew from UK£0.098 to UK£0.26, over the previous 12 months. Year on year growth of 171% is certainly a sight to behold. That could be a sign that the business has reached a true inflection point.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. It's noted that Frontier IP Group's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Frontier IP Group shareholders can take confidence from the fact that EBIT margins are up from 69% to 85%, and revenue is growing. Both of which are great metrics to check off for potential growth.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
earnings-and-revenue-history

Frontier IP Group isn't a huge company, given its market capitalisation of UK£40m. That makes it extra important to check on its balance sheet strength.

Are Frontier IP Group 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. The median total compensation for CEOs of companies similar in size to Frontier IP Group, with market caps under UK£165m is around UK£279k.

The Frontier IP Group CEO received UK£226k in compensation for the year ending June 2021. That comes in below the average for similar sized companies and seems pretty reasonable. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Frontier IP Group Deserve A Spot On Your Watchlist?

Frontier IP Group's earnings have taken off in quite an impressive fashion. With increasing profits, its seems likely the business has a rosy future; and it may have hit an inflection point. What's more, the fact that the CEO's compensation is quite reasonable is a sign that the company is conscious of excessive spending. It will definitely require further research to be sure, but it does seem that Frontier IP Group has the hallmarks of a quality business; and that would make it well worth watching. We should say that we've discovered 2 warning signs for Frontier IP Group (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

Although Frontier IP Group 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here