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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital – so investors should be cautious that they’re not throwing good money after bad.
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 Avid Technology (NASDAQ:AVID). While this doesn’t necessarily speak to whether it’s undervalued, the profitability of the business is enough to warrant some appreciation – especially if its growing.
See our latest analysis for Avid Technology
How Fast Is Avid Technology Growing Its Earnings Per Share?
Over the last three years, Avid Technology has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn’t particularly indicative of expected future performance. As a result, we’ll zoom in on growth over the last year, instead. Avid Technology’s EPS shot up from US$0.92 to US$1.26; a result that’s bound to keep shareholders happy. That’s a commendable gain of 37%.
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 was a year of stability for Avid Technology as both revenue and EBIT margins remained have been flat over the past year. That’s not bad, but it doesn’t point to ongoing future growth, either.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Avid Technology’s forecast profits?
Are Avid Technology Insiders Aligned With All Shareholders?
It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Avid Technology insiders have a significant amount of capital invested in the stock. Notably, they have an enviable stake in the company, worth US$112m. Holders should find this level of insider commitment quite encouraging, since it would ensure that the leaders of the company would also experience their success, or failure, with the stock.
While it’s always good to see some strong conviction in the company from insiders through heavy investment, it’s also important for shareholders to ask if management compensation policies are reasonable. Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to Avid Technology, with market caps between US$1.0b and US$3.2b, is around US$5.4m.
Avid Technology offered total compensation worth US$3.6m to its CEO in the year to December 2021. That is actually below the median for CEO’s of similarly sized companies. 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.
Does Avid Technology Deserve A Spot On Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into Avid Technology’s strong EPS growth. If you need more convincing beyond that EPS growth rate, don’t forget about the reasonable remuneration and the high insider ownership. The overarching message here is that Avid Technology has underlying strengths that make it worth a look at. What about risks? Every company has them, and we’ve spotted 2 warning signs for Avid Technology (of which 1 is concerning!) you should know about.
The beauty of investing is that you can invest in almost 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.
Valuation is complex, but we’re helping make it simple.
Find out whether Avid Technology is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.
