For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?’ Leuz et. al. found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in MediaTek (TPE:2454). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Check out our latest analysis for MediaTek
MediaTek’s Earnings Per Share Are Growing.
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That makes EPS growth an attractive quality for any company. Over the last three years, MediaTek has grown EPS by 5.9% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
One way to double-check a company’s growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. MediaTek shareholders can take confidence from the fact that EBIT margins are up from 8.0% to 10%, and revenue is growing. That’s great to see, on both counts.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
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 MediaTek’s future profits.
Are MediaTek Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a NT$1.1t company like MediaTek. But we are reassured by the fact they have invested in the company. Notably, they have an enormous stake in the company, worth NT$127b. 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 MediaTek, with market caps over NT$235b, is about NT$38m.
The CEO of MediaTek only received NT$3.6m in total compensation for the year ending . 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 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.
Does MediaTek Deserve A Spot On Your Watchlist?
One positive for MediaTek is that it is growing EPS. That’s nice to see. The fact that EPS is growing is a genuine positive for MediaTek, but the pretty picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, I’d argue this one is worthy of the watchlist, at least. Before you take the next step you should know about the 1 warning sign for MediaTek that we have uncovered.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.
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. 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.
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I Ran A Stock Scan For Earnings Growth And MediaTek (TPE:2454) Passed With Ease - Simply Wall St
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