Do Filtronic’s (LON:FTC) Earnings Warrant Your Attention?

Investors are often guided by the idea of discovering ‘the next big thing’, even if that means buying ‘story stocks’ without any revenue, let alone profit. 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.

If this kind of company isn’t your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Filtronic (LON:FTC). While this doesn’t necessarily speak to whether it’s undervalued, the profitability of the business is enough to warrant some appreciation – especially if its growing.

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In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. So for many budding investors, improving EPS is considered a good sign. It’s an outstanding feat for Filtronic to have grown EPS from UK£0.015 to UK£0.064 in just one year. While it’s difficult to sustain growth at that level, it bodes well for the company’s outlook for the future. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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. The good news is that Filtronic is growing revenues, and EBIT margins improved by 12.0 percentage points to 26%, over the last year. Both of which are great metrics to check off for potential growth.

You can take a look at the company’s revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

Check out our latest analysis for Filtronic

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Filtronic’s forecast profits?

It’s a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. So it is good to see that Filtronic insiders have a significant amount of capital invested in the stock. With a whopping UK£67m worth of shares as a group, insiders have plenty riding on the company’s success. That holding amounts to 19% of the stock on issue, thus making insiders influential owners of the business and aligned with the interests of shareholders.

Filtronic’s earnings per share growth have been climbing higher at an appreciable rate. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, Filtronic is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. We don’t want to rain on the parade too much, but we did also find 2 warning signs for Filtronic that you need to be mindful of.

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 tailored list of British companies which have demonstrated growth backed by significant insider holdings.

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.