Here's Why Napco Security Technologies (NASDAQ:NSSC) Has Grabbed Investors' Attention

Investors are often driven by the idea of finding “the next big thing,” even if that means buying “star stocks” with no revenue, let alone profits. Sometimes, these stories can cloud investors’ minds, causing them to invest based on emotion rather than on the company’s sound fundamentals. While a well-funded company may suffer losses for years, it will eventually have to turn a profit or investors will move on and the company will wither.

In contrast to all this, many investors prefer to focus on companies like Napco Safety Technologies (NASDAQ:NSSC), which generates not only revenue, but also profits. While this does not necessarily mean it is undervalued, the company’s profitability is enough to warrant some appreciation – especially if it is growing.

Check out our latest analysis for Napco Security Technologies

How fast is Napco Security Technologies growing its earnings per share?

Over the last three years, Napco Security Technologies has grown its earnings per share (EPS) at an impressive rate from a relatively low base, which translates into a three-year percentage growth rate that is not particularly indicative of expected future performance. It would therefore be best to isolate the last year’s growth rate for our analysis. Remarkably, Napco Security Technologies’ EPS has grown from US$0.66 to US$1.27 over the last year. A 94% year-over-year growth is certainly a sight to behold.

Revenue growth is a great indicator of growth sustainability, and when combined with a high operating margin, it’s a great way for a company to maintain a competitive edge in the market. The good news is that Napco Security Technologies is growing its revenue and its operating margins improved by 11.4 percentage points to 28% over the last year. Checking both of these boxes is a good sign of growth, in our view.

You can see the company’s revenue and profit trends in the graph below. For more details, click on the image.

You don’t drive with your eyes in the rearview mirror, so this might interest you more. free report showing analysts’ forecasts for Napco Security Technologies future benefits.

Are Napco Security Technologies Insiders Aligned With All Shareholders?

Investors should feel secure in owning shares of a company if insiders also own shares, creating a close alignment of their interests. Fans of Napco Security Technologies will be reassured to know that insiders have a significant amount of capital that aligns their best interests with those of the broader shareholder group. Owning $86 million worth of company stock is no small feat, and insiders will be committed to delivering the best results for shareholders. This would indicate that the goals of shareholders and management are the same.

While it is always positive to see strong insider conviction in a company, thanks to significant investment, it is also important for shareholders to question whether executive compensation policies are reasonable. Indeed, based on CEO compensation, this is indeed the case. For companies with a market capitalization of $1.0b to $3.2b, such as Napco Security Technologies, the median CEO compensation is about $5.7m.

Napco Security Technologies’ CEO only received $1.3 million in total compensation for the financial year ending June 2023. That’s clearly well below average, so on the surface this arrangement seems generous to shareholders and is indicative of a culture of modest compensation. While the CEO’s compensation level shouldn’t be the most important factor in how the company is viewed, modest compensation is a positive because it suggests that the board has shareholders’ interests in mind. In general, it can be argued that reasonable compensation levels are indicative of good decision-making.

Are Napco Security Technologies Worth Watching?

Napco Security Technologies’ earnings per share have been soaring, with very high growth rates. What’s more interesting is that insiders have a mountain of shares, and CEO compensation is quite reasonable. The drastic earnings growth indicates that the company is going from strength to strength. Hopefully, this trend will continue in the future. Napco Security Technologies certainly ticks a few boxes, so we think it’s probably worth considering further. Keep in mind that there may still be risks. For example, we’ve identified 1 warning sign for Napco Security Technologies which you should be aware of.

There is always the possibility of doing well by buying stocks that are not profit growth and not have insiders buying shares. But for those taking these important measures into account, we encourage you to check out the companies that TO DO have these characteristics. You can access a personalized list of companies that have demonstrated growth supported by significant internal participations.

Please note that insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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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 constitute financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. Our goal is to provide you with focused, long-term analysis based on fundamental data. Please note that our analysis may not factor in the latest price-sensitive company announcements or qualitative information. Simply Wall St has no position in any of the stocks mentioned.

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