Advertisement
Australia markets open in 8 hours 12 minutes
  • ALL ORDS

    8,209.20
    -63.50 (-0.77%)
     
  • AUD/USD

    0.6685
    -0.0026 (-0.38%)
     
  • ASX 200

    7,971.60
    -64.90 (-0.81%)
     
  • OIL

    80.25
    -2.57 (-3.10%)
     
  • GOLD

    2,402.80
    -53.60 (-2.18%)
     
  • Bitcoin AUD

    100,563.23
    +727.63 (+0.73%)
     
  • CMC Crypto 200

    1,387.49
    +56.59 (+4.25%)
     

Here's Why Tower (NZSE:TWR) Has Caught The Eye Of Investors

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like Tower (NZSE:TWR), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for Tower

Tower's Improving Profits

Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. So a growing EPS generally brings attention to a company in the eyes of prospective investors. It's an outstanding feat for Tower to have grown EPS from NZ$0.021 to NZ$0.091 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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. The good news is that Tower is growing revenues, and EBIT margins improved by 8.2 percentage points to 12%, over the last year. 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. For finer detail, click on the image.

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 Tower's future EPS 100% free.

Are Tower Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

The good news for Tower shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Independent Director Michael Cutter bought NZ$21k worth of shares at an average price of around NZ$0.61. It seems that at least one insider is prepared to show the market there is potential within Tower.

It's commendable to see that insiders have been buying shares in Tower, but there is more evidence of shareholder friendly management. Specifically, the CEO is paid quite reasonably for a company of this size. The median total compensation for CEOs of companies similar in size to Tower, with market caps between NZ$163m and NZ$653m, is around NZ$1.0m.

The Tower CEO received NZ$658k in compensation for the year ending September 2023. 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. It can also be a sign of good governance, more generally.

Does Tower Deserve A Spot On Your Watchlist?

Tower's earnings have taken off in quite an impressive fashion. Better yet, we can observe insider buying and the chief executive pay looks reasonable. The strong EPS growth suggests Tower may be at an inflection point. If these have piqued your interest, then this stock surely warrants a spot on your watchlist. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Tower is trading on a high P/E or a low P/E, relative to its industry.

The good news is that Tower is not the only stock with insider buying. Here's a list of small cap, undervalued companies in NZ 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.