Does the Kainos Group (LON: KNOS) deserve a spot on your watchlist?
Like a puppy chasing its tail, some new investors are often looking for “the next big thing,” even if that means buying “history stocks” with no income, let alone profit. Unfortunately, high-risk investments are often unlikely to pay off, and many investors pay a price to learn their lesson.
Contrary to all this, I prefer to spend time on companies like Kainos Group (LON: KNOS), which not only has income, but also profits. Even if stocks are fully valued today, most capitalists would recognize its benefits as a demonstration of constant value generation. While a well-funded business can suffer losses for years, unless its owners have an endless appetite to subsidize the customer, it will eventually have to generate a profit, or else take its last breath.
See our latest analysis for Kainos Group
The earnings per share of the Kainos group are growing.
As one of my mentors once told me, the stock price tracks earnings per share (EPS). This means that growing EPS is seen as a real benefit by most successful long-term investors. Who among us wouldn’t applaud Kainos Group’s stratospheric 48% annual growth in BPA, compound, over the past three years? This kind of growth never lasts long, but like a shooting star, it’s worth watching when it does.
One way to check the growth of a business is to look at the evolution of its income and its margins before interest and taxes (EBIT). The shareholders of the Kainos group can rely on the fact that EBIT margins have increased from 13% to 21% and revenues are increasing. Checking those two boxes is a good sign of growth in my book.
You can check out the revenue and profit growth trend of the company in the chart below. Click on the graph to see the exact numbers.
Fortunately, we have access to the forecasts of the analysts of the Kainos group. future profits. You can make your own predictions without looking, or you can take a look at what the pros are predicting.
Are Kainos Group Insiders Aligned with All Shareholders?
I like that business leaders have some skin in the game, so to speak, because it increases the alignment of incentives between the people who run the business and its real owners. Accordingly, I am encouraged by the fact that insiders own shares of Kainos Group of considerable value. Notably, they have a huge stake in the company, worth £ 604million. With 25% of the activity, this participation gives insiders a lot of influence and many reasons to generate value for the shareholders. It may be my imagination, but I feel the glimmer of an opportunity.
It’s good to see insiders invested in the company, but are the pay levels reasonable? A brief analysis of CEO compensation suggests they are. For companies with a market capitalization between £ 1.4bn and £ 4.6bn, like Kainos Group, the median CEO salary is around £ 1.2m.
The CEO of Kainos Group received just £ 591,000 in total compensation for the year ending. This is clearly well below par, so at first glance this arrangement seems generous to shareholders and indicates a culture of modest compensation. Although the level of CEO compensation is not a big factor in my view of the company, modest compensation is positive because it suggests that the board has the interests of shareholders in mind. I would also say that reasonable pay levels are a testament to good decision making more generally.
Should you add the Kainos group to your watchlist?
Kainos Group’s earnings per share took off like a rocket pointed straight at the moon. The icing on the cake is that the insiders own a bunch of stocks, and the CEO’s pay really looks quite reasonable. The strong improvement in BPA suggests that companies are buzzing. The Kainos group certainly ticks a few of my boxes, so I think that probably deserves a closer look. Remember that there can still be risks. For example, we have identified 2 warning signs for Kainos Group that you should be aware of.
Of course, you can (sometimes) buy stocks that are not growing income and not have insiders who buy stocks. But as a growth investor, I always like to check out companies that to do have these characteristics. You can access a free list of them here.
Please note that the insider trading discussed in this article refers to reportable trades in the relevant jurisdiction.
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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 unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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