Like a puppy chasing its tail, some new investors often pursue âthe next big thing,â even if that means buying âhistory stocksâ with no income, let alone profit. And in their study entitled Who is the prey of the Wolf of Wall Street? ‘ Leuz and. Al. Have found that it is “quite common” for investors to lose money by purchasing “pump and dump” programs.
Contrary to all this, I prefer to spend time on companies like WD-40 (NASDAQ: WDFC), which not only has revenue, but also profits. While that doesn’t make stocks worth buying at all costs, you can’t deny that successful capitalism ultimately requires profits. Loss-making businesses always race against time to achieve financial viability, but time is often the friend of the profitable business, especially if it is growing.
See our latest review for WD-40
How fast does the WD-40 grow?
If a company can sustain earnings per share (EPS) growth long enough, its stock price will eventually follow. Therefore, many investors like to buy stocks of companies with growing EPS. We can see that over the past three years, WD-40 has increased its EPS by 11% per year. This growth rate is good enough, assuming the business can sustain it.
I like to see revenue growth as an indication that growth is sustainable, and I look for a high profit margin before interest and taxes (EBIT) to indicate a competitive gap (although some low-margin companies also have ditches). WD-40 shareholders can be confident that EBIT margins have increased from 19% to 21% and revenues are increasing. Checking those two boxes is a good sign of growth in my book.
In the graph below, you can see how the company has increased its profit and revenue over time. For more details, click on the image.
You don’t drive with your eyes on the rearview mirror so you might be more interested in this free report showing analyst forecasts for WD-40 future profits.
Are WD-40 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 who run the business and its real owners. As a result, I am encouraged that insiders own WD-40 shares of considerable value. Indeed, they hold 47 million US dollars of its shares. That’s a lot of money, and that’s no small incentive to work hard. Although it only represents 1.4% of the business, the value of this investment is enough to show that insiders have a lot going on in the business.
It’s good to see insiders invested in the company, but are the pay levels reasonable? Well, based on CEO pay, I would say they are indeed. For companies with a market cap between $ 2.0 billion and $ 6.4 billion, like WD-40, the median CEO salary is around $ 5.2 million.
The CEO of WD-40 received $ 2.9 million in compensation for the year ending. This is lower than the average for similar sized companies and seems pretty reasonable to me. CEO compensation levels aren’t the most important metric for investors, but when the salary is modest, it promotes better alignment between the CEO and common shareholders. It can also be a sign of good governance, more generally.
Does the WD-40 deserve a spot on your watchlist?
An important encouraging feature of WD-40 is that it increases profits. The fact that the EPS grows is a real plus for the WD-40, but the pretty picture is better than that. With a significant level of insider ownership and reasonable CEO compensation, a reasonable mind might conclude that this is a stock to watch. And the risks? Every business has them, and we’ve spotted 2 warning signs for WD-40 you should know.
Of course, you can (sometimes) buy stocks that are not growing income and do not have insiders who buy stocks. But as a growth investor, I always like to check out companies that do have these characteristics. You can access a free list of them here.
Please note that the insider dealing discussed in this article refers to reportable trades in the relevant jurisdiction.
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