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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Cadence Design Systems (NASDAQ:CDNS). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
How Fast Is Cadence Design Systems Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Cadence Design Systems has managed to grow EPS by 17% per year over three years. This has no doubt fuelled the optimism that sees the stock trading on a high multiple of earnings.
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 Cadence Design Systems remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 11% to US$4.1b. That's a real positive.
In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.
NasdaqGS:CDNS Earnings and Revenue History July 15th 2024
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 Cadence Design Systems.
Are Cadence Design Systems Insiders Aligned With All Shareholders?
Since Cadence Design Systems has a market capitalisation of US$87b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$713m. While that is a lot of skin in the game, we note this holding only totals to 0.8% of the business, which is a result of the company being so large. This should still be a great incentive for management to maximise shareholder value.
Should You Add Cadence Design Systems To Your Watchlist?
For growth investors, Cadence Design Systems' raw rate of earnings growth is a beacon in the night. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. 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. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Cadence Design Systems.
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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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
テック銘柄の青空投資時代にあっても、多くの投資家は、Cadence Design Systems (NASDAQ:CDNS) のような利益の出る企業の株式を買うなど、より伝統的な戦略を採用しています。これは同社が最良の投資機会を提供しているわけではないという意味ではなく、収益性はビジネスにおいて成功の重要な要素の1つです。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。