Here's Why We Think Mercury NZ (NZSE:MCY) Is Well Worth Watching
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.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Mercury NZ (NZSE:MCY). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
View our latest analysis for Mercury NZ
Mercury NZ's Earnings Per Share Are Growing
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Mercury NZ has grown EPS by 8.9% per year. That's a pretty good rate, if the company can sustain it.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. While we note Mercury NZ achieved similar EBIT margins to last year, revenue grew by a solid 7.0% to NZ$2.2b. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of Mercury NZ's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Mercury NZ Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
We note that Mercury NZ insiders spent NZ$91k on stock, over the last year; in contrast, we didn't see any selling. This is a good look for the company as it paints an optimistic picture for the future.
Recent insider purchases of Mercury NZ stock is not the only way management has kept the interests of the general public shareholders in mind. Namely, Mercury NZ has a very reasonable level of CEO pay. For companies with market capitalisations between NZ$3.4b and NZ$11b, like Mercury NZ, the median CEO pay is around NZ$2.6m.
The Mercury NZ CEO received NZ$2.1m in compensation for the year ending June 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add Mercury NZ To Your Watchlist?
As previously touched on, Mercury NZ is a growing business, which is encouraging. And there's more to Mercury NZ, with the insider buying and modest CEO pay being a great look for those with an eye on the company. All things considered, Mercury NZ is certainly displaying its merits and is worthy of taking research to the next step. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for Mercury NZ (1 is a bit concerning) you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Mercury NZ, you'll probably love this free list of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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