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It’s common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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.
So if this idea of high risk and high reward doesn’t suit, you might be more interested in profitable, growing companies, like Kontoor Brands (NYSE:KTB). While profit isn’t the sole metric that should be considered when investing, it’s worth recognising businesses that can consistently produce it.
See our latest analysis for Kontoor Brands
How Quickly Is Kontoor Brands Increasing Earnings Per Share?
The market is a voting machine in the short term, but a weighing machine in the long term, so you’d expect share price to follow earnings per share (EPS) outcomes eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shareholders will be happy to know that Kontoor Brands’ EPS has grown 27% each year, compound, over three years. If the company can sustain that sort of growth, we’d expect shareholders to come away satisfied.
It’s often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company’s growth. EBIT margins for Kontoor Brands remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 5.1% to US$2.6b. That’s encouraging news for the company!
The chart below shows how the company’s bottom and top lines have progressed over time. For finer detail, click on the image.
Fortunately, we’ve got access to analyst forecasts of Kontoor Brands’ future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Kontoor Brands 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. Shareholders will be pleased by the fact that insiders own Kontoor Brands shares worth a considerable sum. As a matter of fact, their holding is valued at US$30m. This considerable investment should help drive long-term value in the business. Even though that’s only about 1.3% of the company, it’s enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Is Kontoor Brands Worth Keeping An Eye On?
If you believe that share price follows earnings per share you should definitely be delving further into Kontoor Brands’ strong EPS growth. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Kontoor Brands’ continuing strength. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. Still, you should learn about the 3 warning signs we’ve spotted with Kontoor Brands (including 2 which are a bit unpleasant).
There’s always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you 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.
What are the risks and opportunities for Kontoor Brands?
Kontoor Brands, Inc., a lifestyle apparel company, designs, manufactures, procures, markets, and distributes denim, apparel, and accessories under the Wrangler, Lee, and Rock & Republic brands in the United States and internationally.
View Full Analysis
Rewards
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Price-To-Earnings ratio (9.9x) is below the US market (14.3x)
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Earnings are forecast to grow 3.82% per year
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Earnings grew by 22.2% over the past year
Risks
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Debt is not well covered by operating cash flow
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High level of non-cash earnings
View all Risks and Rewards
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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