Yahoo Finance Here's Why Neuren Pharmaceuticals (ASX:NEU) Has Caught The Eye Of Investors
It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.
In contrast to all that, many investors prefer to focus on companies like Neuren Pharmaceuticals (ASX:NEU), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
Check out our latest analysis for Neuren Pharmaceuticals
Neuren Pharmaceuticals' Improving Profits
Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. Which is why EPS growth is looked upon so favourably. It's an outstanding feat for Neuren Pharmaceuticals to have grown EPS from AU$0.0015 to AU$1.23 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It's noted that, last year, Neuren Pharmaceuticals' revenue from operations was lower than its revenue, so that could distort our analysis of its margins. The music to the ears of Neuren Pharmaceuticals shareholders is that EBIT margins have grown from -4.7% to 86% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of Neuren Pharmaceuticals' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Neuren Pharmaceuticals Insiders Aligned With All Shareholders?
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. Shareholders will be pleased by the fact that insiders own Neuren Pharmaceuticals shares worth a considerable sum. With a whopping AU$81m worth of shares as a group, insiders have plenty riding on the company's success. This should keep them focused on creating long term value for shareholders.
It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations between AU$1.5b and AU$4.9b, like Neuren Pharmaceuticals, the median CEO pay is around AU$2.1m.
Neuren Pharmaceuticals' CEO took home a total compensation package of AU$546k in the year prior to December 2022. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.
Is Neuren Pharmaceuticals Worth Keeping An Eye On?
Neuren Pharmaceuticals' earnings per share growth have been climbing higher at an appreciable rate. An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management. The strong EPS improvement suggests the businesses is humming along. Neuren Pharmaceuticals certainly ticks a few boxes, so we think it's probably well worth further consideration. Now, you could try to make up your mind on Neuren Pharmaceuticals by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
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 Australian companies which have demonstrated growth backed by recent insider purchases.
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.
