Yahoo Finance Do Pennant Group's (NASDAQ:PNTG) Earnings Warrant Your Attention?
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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Pennant Group (NASDAQ:PNTG). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
Check out our latest analysis for Pennant Group
Pennant Group's Improving Profits
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Outstandingly, Pennant Group's EPS shot from US$0.25 to US$0.55, over the last year. It's a rarity to see 115% year-on-year growth like that.
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. EBIT margins for Pennant Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 18% to US$575m. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Pennant Group.
Are Pennant Group Insiders Aligned With All Shareholders?
It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Pennant Group followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. To be specific, they have US$31m worth of shares. That's a lot of money, and no small incentive to work hard. While their ownership only accounts for 4.3%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
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. Well, based on the CEO pay, you'd argue that they are indeed. For companies with market capitalisations between US$400m and US$1.6b, like Pennant Group, the median CEO pay is around US$3.4m.
Pennant Group's CEO took home a total compensation package worth US$1.9m in the year leading up to December 2023. That seems pretty reasonable, especially given it's below the median for similar sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.
Should You Add Pennant Group To Your Watchlist?
Pennant Group's earnings per share have been soaring, with growth rates sky high. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The sharp increase in earnings could signal good business momentum. Pennant Group certainly ticks a few boxes, so we think it's probably well worth further consideration. However, before you get too excited we've discovered 1 warning sign for Pennant Group that you should be aware of.
While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in the US with promising growth potential and insider confidence.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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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.
