Here’s why I think Sectra (STO:SECT B) is an interesting stock

Some have more money than sense, they say, so even companies with no revenue, no profit and a history of failures can easily find investors. But as Warren Buffett said, “If you’ve been playing poker for half an hour and you still don’t know who the sucker is, you’re the sucker.” When buying such stocks, investors are too often suckers.

In the era of blue-sky tech-stock investments, my choice may seem old-fashioned; I always prefer profitable companies like sectra (STO: SECT B). While that doesn’t make stocks worth buying at any price, you can’t deny that successful capitalism ultimately requires profits. While a well-funded business may suffer losses for years, unless its owners have an endless appetite to subsidize the customer, it will eventually have to turn a profit, or else breathe its last breath.

See our latest analysis for Sectra

Sectra’s earnings per share increase.

The market is a short-term voting machine, but a long-term weighing machine, so stock price eventually follows earnings per share (EPS). This means EPS growth is seen as a real benefit by most successful long-term investors. It is certainly pleasing to see that Sectra has managed to increase EPS by 21% per year over three years. This has undoubtedly fueled the optimism that sees stocks trading on a high earnings multiple.

I like to take a look at earnings before interest and tax margins (EBIT), as well as revenue growth, to get another view of the quality of the company’s growth. The good news is that Sectra is growing revenues and EBIT margins have improved by 2.9 percentage points to 22% compared to last year. It’s great to see, on both counts.

The graph below shows how the company’s bottom line and top results have grown over time. For more details, click on the image.

OM:SECT B Earnings & Earnings History May 8, 2022

Luckily, we have access to analyst forecasts from Sectra future profits. You can make your own predictions without looking, or you can take a peek at what the pros are predicting.

Are Sectra insiders aligned with all shareholders?

I feel safer owning stock in a company if insiders also own stock, thereby aligning our interests more closely. So it’s good to see that Sectra insiders have a lot of capital invested in the stock. Notably, they have a huge stake in the company, worth 6.9 billion kr. This equates to 31% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.

It’s good to see that insiders are invested in the company, but are the compensation levels reasonable? A brief analysis of CEO compensation suggests they are. I found out that the median total compensation of CEOs of companies like Sectra with a market capitalization between 9.9 billion kr and 32 billion kr is around 8.1 million kr.

The CEO of Sectra received 5.5 million kr in compensation for the year that ended. This is below average for companies of a similar size and seems pretty reasonable to me. CEO compensation isn’t the most important aspect of a company to consider, but when it’s reasonable, it gives me a bit more confidence that executives are looking out for shareholders’ interests. I would also say that reasonable levels of compensation attest to good decision-making more generally.

Is Sectra worth watching?

You can’t deny that Sectra has been growing its earnings per share at a very impressive rate. It’s attractive. If that’s not enough, also consider that the CEO’s compensation is quite reasonable and insiders are well invested alongside other shareholders. Each to their own taste, but I think it all makes Sectra look rather interesting. However, you should inquire about the 2 warning signs we spotted with Sectra (including 1 which is concerning).

While Sectra certainly looks good to me, I’d rather have insiders buying stocks. If you also like to see insiders buy, then this free list of growing companies that insiders are buying might be exactly what you are looking for.

Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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