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. 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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like ON Semiconductor (NASDAQ:ON). 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 Semiconductor Growing Its Earnings Per Share?
ON Semiconductor has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. It's good to see that ON Semiconductor's EPS has grown from US$4.24 to US$5.06 over twelve months. There's little doubt shareholders would be happy with that 19% gain.
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. Unfortunately, revenue is down and so are margins. That will not make it easy to grow profits, to say the least.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of ON Semiconductor's forecast profits?
Are ON Semiconductor Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$29b company like ON Semiconductor. But we do take comfort from the fact that they are investors in the company. We note that their impressive stake in the company is worth US$101m. While that is a lot of skin in the game, we note this holding only totals to 0.3% 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 ON Semiconductor To Your Watchlist?
One important encouraging feature of ON Semiconductor is that it is growing profits. If that's not enough on its own, there is also the rather notable levels of insider ownership. The combination definitely favoured by investors so consider keeping the company on a watchlist. However, before you get too excited we've discovered 1 warning sign for ON Semiconductor that you should be aware of.
Although ON Semiconductor 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.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com