The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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. 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 Cavco Industries (NASDAQ:CVCO), 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.
Check out our latest analysis for Cavco Industries
How Fast Is Cavco Industries Growing?
If you believe that markets are even vaguely efficient, then over the long term you’d expect a company’s share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. To the delight of shareholders, Cavco Industries has achieved impressive annual EPS growth of 43%, compound, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.
One way to double-check a company’s growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Not all of Cavco Industries’ revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. Cavco Industries shareholders can take confidence from the fact that EBIT margins are up from 7.9% to 12%, and revenue is growing. That’s great to see, on both counts.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
Fortunately, we’ve got access to analyst forecasts of Cavco Industries’ future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Cavco Industries Insiders Aligned With All Shareholders?
It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Cavco Industries insiders have a significant amount of capital invested in the stock. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$118m. This suggests that leadership will be very mindful of shareholders’ interests when making decisions!
It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Well, based on the CEO pay, you’d argue that they are indeed. Our analysis has discovered that the median total compensation for the CEOs of companies like Cavco Industries with market caps between US$1.0b and US$3.2b is about US$5.6m.
Cavco Industries’ CEO took home a total compensation package worth US$3.6m in the year leading up to April 2021. That seems pretty reasonable, especially given it’s below the median for similar 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 a culture of integrity, in a broader sense.
Should You Add Cavco Industries To Your Watchlist?
Cavco Industries’ earnings have taken off in quite an impressive fashion. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The strong EPS improvement suggests the businesses is humming along. Cavco Industries is certainly doing some things right and is well worth investigating. Even so, be aware that Cavco Industries is showing 1 warning sign in our investment analysis , you should know about…
Although Cavco Industries certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you’re looking for.
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.