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Is Now The Time To Put Tower (NZSE:TWR) On Your Watchlist?

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·4-min read
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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Tower (NZSE:TWR). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Tower

How Fast Is Tower Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Over the last three years, Tower has grown EPS by 16% per year. That growth rate is fairly good, assuming the company can keep it up.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While we note Tower's EBIT margins were flat over the last year, revenue grew by a solid 4.1% to NZ$341m. That's a real positive.

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

Fortunately, we've got access to analyst forecasts of Tower's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Tower Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Not only did Tower insiders refrain from selling stock during the year, but they also spent NZ$193k buying it. That's nice to see, because it suggests insiders are optimistic. Zooming in, we can see that the biggest insider purchase was by Chief Executive Officer Blair Turnbull for NZ$71k worth of shares, at about NZ$0.74 per share.

It's reassuring that Tower insiders are buying the stock, but that's not the only reason to think management are fair to shareholders. I refer to the very reasonable level of CEO pay. I discovered that the median total compensation for the CEOs of companies like Tower with market caps between NZ$147m and NZ$587m is about NZ$767k.

Tower offered total compensation worth NZ$650k to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add Tower To Your Watchlist?

One important encouraging feature of Tower is that it is growing profits. And that's not all, folks. We've also seen insiders buying stock, and noted modest executive pay. If that doesn't automatically earn it a spot on your watchlist then I'd posit it warrants a closer look at the very least. We don't want to rain on the parade too much, but we did also find 1 warning sign for Tower that you need to be mindful of.

As a growth investor I do like to see insider buying. But Tower isn't the only one. You can see a a free list of them here.

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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