Public Companies
APH

Is Now The Time To Put Amphenol (NYSE:APH) On Your Watchlist?

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Amphenol (NYSE:APH). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

How Fast Is Amphenol 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). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. As a tree reaches steadily for the sky, Amphenol's EPS has grown 25% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While we note Amphenol's EBIT margins were flat over the last year, revenue grew by a solid 23% to US$10b. 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.

earnings-and-revenue-history
NYSE:APH Earnings and Revenue History January 24th 2022

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Amphenol's future profits.

Are Amphenol Insiders Aligned With All Shareholders?

Since Amphenol has a market capitalization of US$46b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. Notably, they have an enormous stake in the company, worth US$265m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. I discovered that the median total compensation for the CEOs of companies like Amphenol, with market caps over US$8.0b, is about US$11m.

Amphenol offered total compensation worth US$8.0m to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add Amphenol To Your Watchlist?

You can't deny that Amphenol has grown its earnings per share at a very impressive rate. That's attractive. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. This may only be a fast rundown, but the takeaway for me is that Amphenol is worth keeping an eye on. We don't want to rain on the parade too much, but we did also find 2 warning signs for Amphenol that you need to be mindful of.

Although Amphenol certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

APH

Latest Companies Videos

Simply Wall St

We help you make informed decisions by giving you access to institutional quality data and analysis presented visually.

Learn More