To the uninitiated, it may seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently has no track record of revenue or profits. Sometimes, these stories can cloud investors’ minds, leading them to invest on emotion rather than on the merits of the company’s strong fundamentals. Unprofitable companies can act like a sponge to soak up capital, so investors should be careful not to waste good money.
If companies like this aren’t your cup of tea, but you do like companies that generate revenue and even profits, then you might be interested in NVIDIA (NASDAQ:NVDA) While profits aren’t the only metric to consider when investing, it’s worth recognising companies that can generate consistent profits.
View our latest analysis for NVIDIA
NVIDIA’s profits improve
Investors and investment funds chase profits, which means stock prices tend to rise when earnings per share (EPS) are positive. Therefore, an increase in EPS generally puts a company on the radar of potential investors. NVIDIA’s increase in EPS from $0.19 to $1.73 in just one year is an impressive performance. When profits grow this quickly, it is often expected that the company’s future is bright. However, the key is to determine whether something fundamental has changed or if it is just a temporary increase.
A careful look at revenue growth and earnings before interest and tax (EBIT) margins can help derive a view on the sustainability of recent profit growth. Good news for NVIDIA shareholders: EBIT margins have grown from 17% to 60% over the last 12 months, and revenue is also trending upwards. That’s great on both counts.
The graph below shows how the company’s earnings and revenue have grown over time: Click on the image to see more details.
Earnings and Revenue History
The trick, of course, is to find stocks with their best days ahead, not in the past. You can of course base your opinion on past performance, but it’s also worth checking this interactive graph of EPS forecasts from NVIDIA’s expert analysts.
Are NVIDIA insiders aligned with all shareholders?
NVIDIA’s market cap is $3.1 trillion, so we don’t expect insiders to own a large percentage of the company. However, it’s good to see that they still have an incentive to align their actions with shareholders thanks to their investment in the company. Their stake in the company is worth a whopping $123 billion. This suggests that management is very conscious of shareholder interests when making decisions.
The story continues
Is NVIDIA worthy of being on your watch list?
NVIDIA’s revenue has been soaring in a pretty impressive fashion. Such growth is truly spectacular, and the large investment held by insiders should definitely brighten the company’s prospects. There is a potential opportunity here, as rapid EPS growth is a sign that the business has reached an inflection point. Therefore, based on this brief analysis, we think it may be worth considering adding NVIDIA to your watchlist. We must say that we have spotted 1 warning sign you should be aware of before investing in NVIDIA.
NVIDIA certainly looks good, but if insiders are buying up shares, it might attract more investors. If you want to see companies with more risk, check out our handpicked companies that not only boast strong growth but also have strong insider backing.
Please note that the insider transactions discussed in this article are reportable transactions in the relevant jurisdictions.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell a stock, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.