It’s only natural that many investors, especially those who are new to the game, prefer to buy shares in ‘sexy’ stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’
In contrast to all that, I prefer to spend time on companies like Alpha Pro Tech (NYSEMKT:APT), which has not only revenues, but also profits. Now, I’m not saying that the stock is necessarily undervalued today; but I can’t shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.
View our latest analysis for Alpha Pro Tech
Alpha Pro Tech’s Earnings Per Share Are Growing.
If you believe that markets are even vaguely efficient, then over the long term you’d expect a company’s share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Who among us would not applaud Alpha Pro Tech’s stratospheric annual EPS growth of 40%, compound, over the last three years? That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Alpha Pro Tech shareholders can take confidence from the fact that EBIT margins are up from 9.4% to 12%, and revenue is growing. That’s great to see, on both counts.
In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.
Alpha Pro Tech isn’t a huge company, given its market capitalization of US$184m. That makes it extra important to check on its balance sheet strength.
Are Alpha Pro Tech Insiders Aligned With All Shareholders?
I like company leaders to have some skin in the game, 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 Alpha Pro Tech insiders have a significant amount of capital invested in the stock. To be specific, they have US$18m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 9.6% of the company; visible skin in the game.
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I’d say they are indeed. For companies with market capitalizations between US$100m and US$400m, like Alpha Pro Tech, the median CEO pay is around US$1.4m.
The Alpha Pro Tech CEO received US$934k in compensation for the year ending . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn’t a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I’d also argue reasonable pay levels attest to good decision making more generally.
Does Alpha Pro Tech Deserve A Spot On Your Watchlist?
Alpha Pro Tech’s earnings per share have taken off like a rocket aimed right at the moon. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The strong EPS improvement suggests the businesses is humming along. Alpha Pro Tech certainly ticks a few of my boxes, so I think it’s probably well worth further consideration. Don’t forget that there may still be risks. For instance, we’ve identified 2 warning signs for Alpha Pro Tech that you should be aware of.
Although Alpha Pro Tech certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, 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.
Love or hate this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]
This article by Simply Wall St is general in nature. 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. Thank you for reading.