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Some have more dollars than sense, they say, so
even companies that have no revenue, no profit, and a record of
falling short, can easily find investors. 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.
In contrast to all that, I prefer to spend time
on companies like Marine Products (NYSE:MPX), which has
not only revenues, but also profits. While that doesn't make the
shares worth buying at any price, you can't deny that successful
capitalism requires profit, eventually. While a well funded company
may sustain losses for years, unless its owners have an endless
appetite for subsidizing the customer, it will need to generate a
profit eventually, or else breathe its last breath.
View our latest analysis
for Marine Products
As one of my mentors once told me, share price
follows earnings per share (EPS). It's no surprise, then, that I
like to invest in companies with EPS growth. It certainly is nice
to see that Marine Products has managed to grow EPS by 26% per year
over three years. As a general rule, we'd say that if a company can
keep up that sort of growth, shareholders will be
I like to take a look at earnings before interest
and (EBIT) tax margins, as well as revenue growth, to get another
take on the quality of the company's growth. Marine Products
maintained stable EBIT margins over the last year, all while
growing revenue 11% to US$304m. That's progress.
The chart below shows how the company's bottom
and top lines have progressed over time. Click on the chart to see
the exact numbers.
While it's always good to see growing profits,
you should always remember that a weak balance sheet could come
back to bite. So check Marine Products's balance sheet strength,
before getting too excited.
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 Marine Products insiders have a significant
amount of capital invested in the stock. Given insiders own a small
fortune of shares, currently valued at US$66m, they have plenty of
motivation to push the business to succeed. At 13% of the company,
the co-investment by insiders gives me confidence that management
will make long-term focussed decisions.
It's good to see that insiders are invested in
the company, but are remuneration levels reasonable? Well, based on
the CEO pay, I'd say they are indeed. For companies with market
capitalizations between US$200m and US$800m, like Marine Products,
the median CEO pay is around US$1.7m.
The Marine Products CEO received US$1.2m in
compensation for the year ending December 2018. That seems pretty
reasonable, especially given its below the median for similar sized
companies. CEO compensation is hardly the most important aspect of
a company to consider, but when its reasonable that does give me a
little more confidence that leadership are looking out for
shareholder interests. It can also be a sign of a culture of
integrity, in a broader sense.
You can't deny that Marine Products has grown its
earnings per share at a very impressive rate. That's attractive. If
you need more convincing beyond that EPS growth rate, don't forget
about the reasonable remuneration and the high insider ownership.
Each to their own, but I think all this makes Marine Products look
rather interesting indeed. Of course, identifying quality
businesses is only half the battle; investors need to know whether
the stock is undervalued. So you might want to consider this
free discounted cashflow
valuation of Marine Products.
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
We aim to bring you long-term focused research
analysis driven by fundamental data. Note that our analysis may not
factor in the latest price-sensitive company announcements or
If you spot an error that warrants correction, please contact
the editor at
[email protected] 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. Simply Wall St has no
position in the stocks mentioned. Thank you for reading.