With EPS Growth And More, Frontier IP Group (LON: FIPP) is interesting
For newbies, it might seem like a good idea (and an exciting prospect) to buy a business that tells investors a good story, even if it lacks a history of revenue and profit altogether. But as Peter Lynch put it in One Up on Wall Street, ‘Long shots hardly ever pay off.’
If, on the other hand, you like businesses that have revenue, and even profits, then you might be interested in Frontier IP Group (LON: FIPP). Even if stocks are fully valued today, most capitalists would recognize its benefits as a demonstration of constant value generation. Conversely, a loss-making company has yet to prove itself with profit, and eventually the sweet milk of external capital can turn sour.
See our latest review for Frontier IP Group
How fast is the Frontier IP group growing?
As one of my mentors once told me, the stock price tracks earnings per share (EPS). This makes the growth of BPA an attractive quality for any business. As a tree steadily reaches for the sky, Frontier IP Group’s EPS has increased 36% each year, compound, over three years. If the company can support this kind of growth, we expect shareholders to come out ahead.
One way to check how a business is growing is to look at how its income and profit before interest and tax (EBIT) have changed. Not all Frontier IP Group revenue this year is revenue operations, so keep in mind that the revenue and margin numbers I used might not be the best representation of the underlying business. The good news is that Frontier IP Group is increasing revenue and EBIT margins have improved 9.0 percentage points to 69% over the past year. It’s great to see, on both counts.
In the graph below, you can see how the business has increased its profit and revenue over time. For more details, click on the image.
Frontier IP Group is not a large company considering its market capitalization of £ 63million. It is therefore very important to verify the strength of its balance sheet.
Are Frontier IP Group Insiders Aligned With All Shareholders?
As a general rule, I think it’s worth considering how much the CEO is paid, as unreasonably high rates could be seen as being against the interests of shareholders. For companies with a market capitalization of less than £ 148million, like Frontier IP Group, the median CEO salary is around £ 242,000.
Frontier IP Group offered total compensation worth £ 177,000 to its CEO during the year to. This is lower than the average for similar sized companies and seems pretty reasonable to me. CEO compensation isn’t the most important aspect of a business to consider, but when it’s reasonable, it gives me a little more confidence that leaders are looking out for the interests of shareholders. I would also say that reasonable pay levels are a testament to good decision making more generally.
Is Frontier IP Group Worth Watching?
You cannot deny that Frontier IP Group has grown its earnings per share at a very impressive rate. It is attractive. The rapid growth bodes well as the CEO’s very reasonable salary supports boost confidence in the board. So I would say this is the kind of action to watch out for, although it’s not of great value today. However, you should always think about the risks. Concrete example, we have spotted 3 warning signs for Frontier IP Group you have to be aware of that, and one of them makes us a little uncomfortable.
You can invest in any business. But if you’d rather focus on stocks that have demonstrated insider buying, here’s a list of companies that have made insider buying in the past three months.
Please note that the insider trading discussed in this article refers to reportable trades in the relevant jurisdiction.
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 any of the stocks mentioned.
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