Australia markets open in 4 hours 12 minutes
  • ALL ORDS

    7,490.10
    -178.80 (-2.33%)
     
  • AUD/USD

    0.7174
    -0.0054 (-0.74%)
     
  • ASX 200

    7,175.80
    -166.60 (-2.27%)
     
  • OIL

    86.29
    -0.61 (-0.70%)
     
  • GOLD

    1,836.10
    -6.50 (-0.35%)
     
  • BTC-AUD

    49,016.34
    +690.51 (+1.43%)
     
  • CMC Crypto 200

    870.86
    +628.18 (+258.85%)
     

Is Now The Time To Put Gowing Bros (ASX:GOW) On Your Watchlist?

  • Oops!
    Something went wrong.
    Please try again later.
·4-min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • GOW.AX

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 Gowing Bros (ASX:GOW), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Gowing Bros

Gowing Bros's Earnings Per Share Are Growing.

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That makes EPS growth an attractive quality for any company. Over the last three years, Gowing Bros has grown EPS by 17% per year. That's a pretty good rate, if the company can sustain it.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. I note that Gowing Bros's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. The good news is that Gowing Bros is growing revenues, and EBIT margins improved by 7.3 percentage points to 22%, 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

Since Gowing Bros is no giant, with a market capitalization of AU$168m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Gowing Bros Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Gowing Bros insiders own a significant number of shares certainly appeals to me. In fact, they own 47% of the shares, making insiders a very influential shareholder group. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. With that sort of holding, insiders have about AU$78m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

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. For companies with market capitalizations under AU$273m, like Gowing Bros, the median CEO pay is around AU$405k.

The Gowing Bros CEO received total compensation of just AU$114k in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Does Gowing Bros Deserve A Spot On Your Watchlist?

As I already mentioned, Gowing Bros is a growing business, which is what I like to see. The fact that EPS is growing is a genuine positive for Gowing Bros, but the pretty picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, I'd argue this one is worthy of the watchlist, at least. Before you take the next step you should know about the 2 warning signs for Gowing Bros that we have uncovered.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting