For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and 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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
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 On Holding (NYSE:ONON). 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 On Holding Growing Its Earnings Per Share?
Over the last three years, On Holding has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn’t particularly indicative of expected future performance. As a result, we’ll zoom in on growth over the last year, instead. On Holding’s EPS skyrocketed from CHF0.25 to CHF0.39, in just one year; a result that’s bound to bring a smile to shareholders. That’s a commendable gain of 57%.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it’s a great way for a company to maintain a competitive advantage in the market. While we note On Holding achieved similar EBIT margins to last year, revenue grew by a solid 26% to CHF2.2b. That’s a real positive.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
Are On Holding Insiders Aligned With All Shareholders?
Since On Holding has a market capitalisation of US$15b, we wouldn’t expect insiders to hold a large percentage of shares. But thanks to their investment in the company, it’s pleasing to see that there are still incentives to align their actions with the shareholders. We note that their impressive stake in the company is worth CHF2.9b. That equates to 19% of the company, making insiders powerful and aligned with other shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.
Is On Holding Worth Keeping An Eye On?
If you believe that share price follows earnings per share you should definitely be delving further into On Holding’s strong EPS growth. 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. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it’s a good stock to follow. Of course, profit growth is one thing but it’s even better if On Holding is receiving high returns on equity, since that should imply it can keep growing without much need for capital. Click on this link to see how it is faring against the average in its industry.
Although On Holding certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of companies that not only boast of strong growth but have strong insider backing.