Advertisement
Australia markets closed
  • ALL ORDS

    8,034.90
    -23.70 (-0.29%)
     
  • AUD/USD

    0.6663
    +0.0004 (+0.07%)
     
  • ASX 200

    7,766.70
    -21.60 (-0.28%)
     
  • OIL

    78.94
    +1.22 (+1.57%)
     
  • GOLD

    2,345.40
    +10.90 (+0.47%)
     
  • Bitcoin AUD

    102,830.47
    +13.15 (+0.01%)
     
  • CMC Crypto 200

    1,488.74
    -7.72 (-0.52%)
     

With EPS Growth And More, Patterson Companies (NASDAQ:PDCO) Makes An Interesting Case

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Patterson Companies (NASDAQ:PDCO). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Patterson Companies with the means to add long-term value to shareholders.

See our latest analysis for Patterson Companies

How Fast Is Patterson Companies Growing Its Earnings Per Share?

Over the last three years, Patterson Companies has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. It's good to see that Patterson Companies' EPS has grown from US$1.73 to US$2.01 over twelve months. This amounts to a 16% gain; a figure that shareholders will be pleased to see.

ADVERTISEMENT

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. Patterson Companies reported flat revenue and EBIT margins over the last year. While this doesn't ring alarm bells, it may not meet the expectations of growth-minded investors.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

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

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Patterson Companies' future EPS 100% free.

Are Patterson Companies Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. Patterson Companies followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Indeed, they hold US$22m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.8% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to Patterson Companies, with market caps between US$2.0b and US$6.4b, is around US$6.8m.

The CEO of Patterson Companies only received US$2.6m in total compensation for the year ending April 2022. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Patterson Companies Worth Keeping An Eye On?

One positive for Patterson Companies is that it is growing EPS. That's nice to see. Earnings growth might be the main attraction for Patterson Companies, but the fun does not stop there. With company insiders aligning themselves considerably with the company's success and modest CEO compensation, there's no arguments that this is a stock worth looking into. We should say that we've discovered 3 warning signs for Patterson Companies (2 are a bit concerning!) that you should be aware of before investing here.

Although Patterson Companies 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