It is common for many investors, especially inexperienced ones, to buy shares of companies with good stories even if these companies are losing money. But the truth is that if a company loses money every year, for long enough, its investors usually pick up their share of the losses. Loss-making companies can act like a sponge for capital – so investors should be careful that they don’t throw good money after bad.
If this type of company is not your style, you like companies that make a profit, and even make a profit, then you may be interested in Passionate Technology (NASDAQ:AVID). While it doesn’t necessarily say whether it’s worthless, the profitability of the business is enough to warrant some appreciation – especially if it’s growing.
Check out our latest analysis for Avid Technology
How Fast Is Technology Passion Growing Earnings Per Share?
Over the past three years, Avid Technology has grown earnings per share (EPS) at such an impressive rate from a relatively low point, resulting in a three-year percentage growth rate that is not particularly indicative of expected future performance. As a result, we will zoom in on last year’s growth, instead. Avid Technology’s EPS rose from US$0.92 to US$1.26; a result that should keep shareholders happy. That’s an impressive gain of 37%.
It is often helpful to look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another look at the quality of the company’s growth. It was a year of strength for Avid Technology as revenue and EBIT margins remained flat over the previous year. That’s not bad, but it doesn’t point to continued development in the future, either.
You can see the growth rate of the company’s revenue and earnings, in the chart below. To see the actual numbers, click on the chart.
In investing, as in life, the future is more important than the past. So why not check it out free interactive view of Avid Technology’s prophecy profit?
Are Avid Technology Insiders Appropriate for All Shareholders?
This should give investors a sense of security owning shares in a company if insiders also own shares, making a close alignment of their interests. So it’s good to see that Avid Technology insiders have a large amount of capital invested in the stock. In particular, they have an interesting stake in the company, worth US $ 112m. Holders should find this level of insider commitment encouraging, as it ensures that the company’s leaders also experience their success, or failure, in the stock.
Although it is always good to see some strong conviction in the company from insiders through heavy investment, it is also important for shareholders to question whether management compensation policies are reasonable. Our quick analysis of CEO pay seems to indicate that they are. The median total compensation for CEOs at companies similar in size to Avid Technology, with market caps between US$1.0b and US$3.2b, is about US$5.4m.
Avid Technology is offering total compensation worth US$3.6m to its CEO in the year to December 2021. That’s actually below the CEO median of similarly sized companies. CEO pay levels are not the most important metric for investors, but when pay is low, that supports improved alignment between the CEO and ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.
Is Exciting Technology Worth A Place on Your Watchlist?
If you believe that share price follows earnings per share you should take a closer look at Avid Technology’s strong EPS growth. If you need more convincing than the EPS growth rate, don’t forget about the reasonable compensation and the high owner’s ownership. The overall message here is that Avid Technology has underlying strengths that make it worth a look. What about the risks? Every company has them, and we’ve seen them 2 warning signs for Avid Technology (which 1 is about!) you should know about.
The beauty of investing is that you can invest in almost any company you want. But if you want to focus on stocks that have shown insider buying, here is a list of companies with insider buying in the last three months.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Valuation is complicated, but we help make it simple.
Find out whether Avid Technology may be overvalued or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and caveats, dividends, insider transactions and financial health.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased approach 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 into account your goals, 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 of the stocks mentioned.