For beginners, investing in a company that tells a compelling story can seem enticing, even if it currently lacks a track record of revenue and profit. However, as legendary investor Peter Lynch said in "One Up On Wall Street," "Long shots almost never pay off." While a well-funded company can sustain losses for years, it ultimately needs to generate profit, or else investors will move on, leading the company to decline.
If speculative investments aren't your style and you prefer companies that generate revenue and profits, you might be interested in Altium (ASX: ALU). While this doesn’t necessarily mean it’s undervalued, the company's profitability warrants appreciation, especially if it’s growing.
How Fast Is Altium Growing?
In the long term, a company’s share price is expected to follow its earnings per share (EPS) outcomes, reflecting market efficiency. Therefore, experienced investors pay close attention to EPS growth when conducting investment research. To the delight of shareholders, Altium has achieved impressive annual EPS growth of 58% compounded over the last three years. Such rapid growth is rare and noteworthy.
Top-line growth is a strong indicator of sustainable growth, especially when combined with a high earnings before interest and taxation (EBIT) margin. Altium maintained stable EBIT margins over the past year while growing revenue by 19% to US$282 million, a positive sign of the company’s competitive advantage in the market.
Are Altium Insiders Aligned With Shareholders?
Insider interest in a company often sparks investor intrigue, as insider stock purchases can signal bullishness. Notably, Altium insiders refrained from selling stock over the past year and invested US$85k in buying shares, painting an optimistic picture for the company’s future.
Additionally, Altium insiders hold a substantial investment in the business, currently valued at US$1.1 billion. This significant insider ownership suggests that the leadership is aligned with shareholder interests, ensuring mindful decision-making.
CEO Compensation and Leadership
Beyond insider buying, it's reassuring to see that Altium’s CEO, Aram Mirkazemi, is paid less than the median for similar-sized companies. The median total compensation for CEOs of companies with market caps between US$4.0 billion and US$12 billion is approximately US$2.7 million. In contrast, Mirkazemi received total compensation of just US$862k in the year ending June 2023. This modest remuneration suggests a shareholder-friendly culture and integrity in leadership.