Here's Why I Think Johnson Outdoors (NASDAQ:JOUT) Might Deserve Your Attention Today
It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Johnson Outdoors (NASDAQ:JOUT). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
See our latest analysis for Johnson Outdoors
Johnson Outdoors's Earnings Per Share Are Growing.
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. As a tree reaches steadily for the sky, Johnson Outdoors's EPS has grown 24% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
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. Johnson Outdoors maintained stable EBIT margins over the last year, all while growing revenue 19% to US$675m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are Johnson Outdoors Insiders Aligned With All Shareholders?
I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Johnson Outdoors insiders have a significant amount of capital invested in the stock. Notably, they have an enormous stake in the company, worth US$352m. Coming in at 29% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.
Is Johnson Outdoors Worth Keeping An Eye On?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Johnson Outdoors's strong EPS growth. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. However, before you get too excited we've discovered 2 warning signs for Johnson Outdoors that you should be aware of.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated 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.
This article by Simply Wall St is general in nature. 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.
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