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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like CorVel (NASDAQ:CRVL). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
See our latest analysis for CorVel
How Fast Is CorVel 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. We can see that in the last three years CorVel grew its EPS by 14% per year. That's a good rate of growth, if it can be sustained.
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. CorVel maintained stable EBIT margins over the last year, all while growing revenue 13% to US$871m. That's a real positive.
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.
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 CorVel's balance sheet strength, before getting too excited.
Are CorVel Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$5.5b company like CorVel. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. Notably, they have an enviable stake in the company, worth US$399m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to CorVel, with market caps between US$4.0b and US$12b, is around US$7.9m.
CorVel's CEO took home a total compensation package of US$967k in the year prior to March 2024. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Should You Add CorVel To Your Watchlist?
As previously touched on, CorVel is a growing business, which is encouraging. Earnings growth might be the main attraction for CorVel, but the fun does not stop there. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. You should always think about risks though. Case in point, we've spotted 1 warning sign for CorVel you should be aware of.
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of companies which have demonstrated growth backed by significant insider holdings.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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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.