It’s common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’ A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
So if this idea of high risk and high reward doesn’t suit, you might be more interested in profitable, growing companies, like Macquarie Technology Group (ASX:MAQ). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Macquarie Technology Group with the means to add long-term value to shareholders.
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Shareholders will be happy to know that Macquarie Technology Group’s EPS has grown 30% each year, compound, over three years. As a result, we can understand why the stock trades on a high multiple of trailing twelve month earnings.
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. The good news is that Macquarie Technology Group is growing revenues, and EBIT margins improved by 3.0 percentage points to 14%, over the last year. 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. For finer detail, click on the image.
ASX:MAQ Earnings and Revenue History December 19th 2024
Theory would suggest that it’s an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So as you can imagine, the fact that Macquarie Technology Group insiders own a significant number of shares certainly is appealing. Owning 43% of the company, insiders have plenty riding on the performance of the the share price. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. at the current share price. This is an incredible endorsement from them.
It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Macquarie Technology Group with market caps between AU$1.6b and AU$5.1b is about AU$2.2m.
Macquarie Technology Group’s CEO took home a total compensation package worth AU$1.5m in the year leading up to June 2024. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
You can’t deny that Macquarie Technology Group has grown its earnings per share at a very impressive rate. That’s attractive. If that’s not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. The overarching message here is that Macquarie Technology Group has underlying strengths that make it worth a look at. We don’t want to rain on the parade too much, but we did also find 1 warning sign for Macquarie Technology Group that you need to be mindful of.
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.
