Investors are often guided by the idea of discovering ‘the next big thing’, even if that means buying ‘story stocks’ without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’ A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Bell Equipment (JSE:BEL). While this doesn’t necessarily speak to whether it’s undervalued, the profitability of the business is enough to warrant some appreciation – especially if its growing.
In the last three years Bell Equipment’s earnings per share took off; so much so that it’s a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. Bell Equipment’s EPS shot up from R6.11 to R7.78; a result that’s bound to keep shareholders happy. That’s a fantastic gain of 27%.
It’s often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company’s growth. While we note Bell Equipment achieved similar EBIT margins to last year, revenue grew by a solid 15% to R14b. 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.
Check out our latest analysis for Bell Equipment
Bell Equipment isn’t a huge company, given its market capitalisation of R3.6b. That makes it extra important to check on its balance sheet strength.
As a general rule, it’s worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. Our analysis has discovered that the median total compensation for the CEOs of companies like Bell Equipment with market caps between R1.8b and R7.3b is about R14m.
Bell Equipment’s CEO only received compensation totalling R559k in the year to December 2023. This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO – that is often a good sign. 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. It can also be a sign of good governance, more generally.
