Here’s why I think James Latham (LON:LTHM) is an interesting stock


Like a puppy chasing its tail, some new investors are often looking for “the next big thing,” even if that means buying “history stocks” with no revenue, let alone profit. And in their study titled Who falls prey to the wolf of Wall Street? » Leuz and. al. found that it is “fairly common” for investors to lose money by buying into “pump and dump” schemes.

In the era of blue-sky tech-stock investments, my choice may seem old-fashioned; I always prefer profitable companies like James Latham (LON: LTHM). Even if stocks are fully valued today, most capitalists would recognize its earnings as a demonstration of consistent value generation. Loss-making businesses are always in a race against time to achieve financial viability, but time is often the friend of a profitable business, especially if it is growing.

Check out our latest analysis for James Latham

How fast is James Latham growing up?

If a company can keep increasing its earnings per share (EPS) long enough, its stock price will eventually follow. This makes EPS growth an attractive quality for any business. It is certainly pleasing to see that James Latham has managed to grow EPS by 36% pa over three years. Generally, we would say that if a company can follow this kind of growth, shareholders will be smiling.

A careful look at revenue growth and earnings before interest and tax (EBIT) margins can help inform a view on the sustainability of recent earnings growth. James Latham shareholders can be confident that EBIT margins have fallen from 6.1% to 14% and revenues are growing. It’s great to see, on both counts.

You can check the company’s revenue and profit growth trend in the table below. Click on the table to see the exact numbers.

earnings-and-income-history

With profitability driving the upside, cautious investors also look at the balance sheet.

Are James Latham insiders aligned with all shareholders?

I like that business leaders have some skin in the game, so to speak, because it increases the alignment of incentives between the people running the business and its true owners. Accordingly, I am encouraged that insiders hold shares of James Latham of considerable value. Notably, they have a huge stake in the company, worth £85million. Representing 32% of the company, this stake gives insiders plenty of leverage and plenty of reasons to drive shareholder value. It may be my imagination, but I feel the glimmer of opportunity.

It means a lot to see insiders invested in the company, but I wonder if the compensation policies are shareholder-friendly. A brief analysis of CEO compensation suggests they are. For companies with a market capitalization between £159m and £634m, like James Latham, the median CEO salary is around £816,000.

The James Latham CEO received total compensation of just £283,000 in the year at . This is clearly well below average, so at first glance this arrangement seems generous to shareholders and indicates a modest compensation culture. Although the level of CEO compensation is not a determining factor in my view of the company, modest compensation is positive, as it suggests that the board has the interests of shareholders in mind. I would also say that reasonable levels of compensation attest to good decision-making more generally.

Does James Latham deserve a spot on your watch list?

For growth investors like me, James Latham’s gross earnings growth rate is a beacon in the night. If you need more conviction beyond that EPS growth rate, don’t forget reasonable compensation and high insider participation. Each in their own way, but I think it all makes James Latham rather interesting. Even so, know that James Latham shows 2 warning signs in our investment analysis and 1 of them is a little worrying…

While James Latham certainly looks good to me, I’d rather have insiders buying stocks. If you also like to see insiders buy, then this free list of growing companies that insiders are buyingcould be exactly what you are looking for.

Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.

Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.