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If EPS Growth Is Important To You, Keysight Technologies (NYSE:KEYS) Presents An Opportunity

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 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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like Keysight Technologies (NYSE:KEYS), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Keysight Technologies with the means to add long-term value to shareholders.

See our latest analysis for Keysight Technologies

Keysight Technologies' Earnings Per Share Are Growing

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 Keysight Technologies' EPS has grown 22% each year, compound, over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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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. Keysight Technologies shareholders can take confidence from the fact that EBIT margins are up from 23% to 26%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

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

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Keysight Technologies?

Are Keysight Technologies Insiders Aligned With All Shareholders?

Owing to the size of Keysight Technologies, we wouldn't expect insiders to hold a significant proportion of the company. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. Notably, they have an enviable stake in the company, worth US$120m. This comes in at 0.4% of shares in the company, which is a fair amount of a business of this size. This still shows shareholders there is a degree of alignment between management and themselves.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to Keysight Technologies, with market caps over US$8.0b, is around US$13m.

The Keysight Technologies CEO received US$9.4m in compensation for the year ending October 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Should You Add Keysight Technologies To Your Watchlist?

You can't deny that Keysight Technologies has grown its earnings per share at a very impressive rate. That's attractive. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. This may only be a fast rundown, but the key takeaway is that Keysight Technologies is worth keeping an eye on. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Keysight Technologies.

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

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.

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